Spring 2009 issue of Horizons

INDUSTRy u

public sector

Detecting and Deterring Fraud in Local Governments When one thinks of fraud, the corporate sector is typically the segment of the economy that first comes to mind. Fraud schemes at Enron, WorldComand other companies have grabbed the headlines during the last decade, and in the process they have cost investors billions of dollars and resulted in major accounting overhauls, including the adoption of the Sarbanes-Oxley Act. So, it might be surprising to learn that the government sector actually ranks second in terms of the frequency of fraud, behind only the banking and financial services industry, according to the Association of Certified Fraud Examiners’ “2008 Report to the Nation on Occupational Fraud.” This fact is alarming considering that, unlike corporations, governments do not exist to make a profit but to exercise a fiduciary responsibility over taxpayers’ money. No one wants their money to be stolen, and undoubtedly most taxpayers will feel their money has been stolen if their local government falls victim to fraud. Types Of Fraud Fraud can be as minor as a theft of office supplies or as serious as defrauding investors and creditors through elaborate accounting schemes. Fraud may be classified into three broad categories: asset misappropriation, fraudulent financial reporting and corruption. Asset misappropriation usually involves misappropriation of cash, either through outright theft, skimming of cash receipts, or fraudulent cash disbursements. However, asset misappropriation also can involve non-cash assets, such as computers, vehicles or inventory. By Craig White, CPA

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u spring 2009 issue