Spring 2015 issue of Horizons

Assess Your Organization’s Fraud Risks Engaging in a dialogue with people in various roles within your organization will help identify where your organization’s most significant fraud risks are. This fraud risk assessment should address the following key elements:

Internal Controls Over Cash Disbursements

Purchasing and cash disbursements tend to be the areas where fraud and abuse most commonly occurs. The following duties should be segregated as much as possible:

∙ Describe the risk

∙ Purchase requests or authorizations

∙ Explain the impact of the risk on the organization if it is not mitigated

∙ Receipt of purchased items

∙ Accounts payable recording

∙ Assess the likelihood (remote, more than remote/reasonably possible or probable) of the fraud occurring

∙ Invoice approval

∙ Check writing and/or initialization of electronic transfers

∙ Assess the significance of the fraud

∙ Prioritize the fraud risk factors based on risk

∙ Check mailing

∙ Identify potential schemes and scenarios

∙ Monthly reconciliations of bank accounts

∙ Link existing controls to the fraud risk factors and identify gaps

Additionally, general internal controls that should be instituted include:

∙ Test operating effectiveness of existing controls of preventing fraud

∙ Using pre-numbered checks in sequential order and monitoring check stock control

The fraud assessment must be supported by management and the board of directors and reviewed at least annually.

∙ Limiting the use of signature stamps and prohibiting the signing of blank checks

∙ Always updating check signers when a change occurs

Focus on the Basics Frauds perpetrated against non-profits typically include asset misappropriations such as cash receipts, cash disbursements and payroll schemes, as well as property theft. Being aware of your organization’s key internal controls related to its cash receipts, cash disbursements and payroll is an excellent start to strengthening the organization’s financial internal control environment. This will also decrease the likelihood of someone committing and concealing fraud. As many not-for-profit organizations often have fewer individuals wearing many hats, internal controls, particularly those related to segregation of duties, require careful planning and consideration.

∙ Receiving and reviewing unopened bank statements by someone not involved in recording or authorizing cash transactions ∙ Reconciling all bank accounts monthly by someone not involved in the cash disbursements process and review by another independent party

∙ Regular monitoring of expense account balances against budget

∙ Use of positive pay, a fraud prevention service offered by banks

∙ Requiring two signatures on all checks over a set threshold that is accompanied by supporting documentation

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