Spring 2009 issue of Horizons

INDUSTRy u public sector Detecting and Deterring Fraud in Local Governments (cont.)

Strong Internal Controls According to the ACFE study, 20 percent of fraud schemes that were uncovered were initially detected though internal controls. Management needs to design controls to provide assurance that fraud objectives are being met. This process starts with operations that are routine in most governments, such as preparing monthly bank and account reconciliations. It is imperative that these controls are performed in a timely manner in order to function properly. Effective controls surrounding check processing also are essential for every government. In general, there should be a segregation of duties for the approval, processing and signing of checks, as well as the reconciliation of bank statements. All checks over a dollar threshold should be manually signed by two employees from outside of the finance department. These steps alone greatly decrease the chance of billing schemes going undetected. The government also should invest in check stock that cannot be scanned or easily manipulated.

Governments also can take advantage of their bank’s positive pay system, a common devise used to eliminate check fraud. Under such a system, the government’s finance department submits its check register daily to the bank through a secure online process. The bank then only clears checks that match the check number, payee and amounts submitted by the government. When a government receives a significant number of check payments through the mail, it may be wise to establish a lockbox with the bank to mitigate fraud. Under a lockbox system, receipts are mailed directly to the government’s bank, where they are tracked and deposited. This process essentially eliminates the risk that check receipts will bemisappropriated. Governments also should obtain fidelity bonds for all employees who handle cash.

u spring 2009 issue

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