As a public finance professional, you are expected to safeguard the public’s money while it’s under your control. Unfortunately, there is no typical picture of the fraud perpetrator and embezzlement of public funds is all too common place, so you have your work cut out for you! An excellent place to start is with Joe Dervaes’ “STOP THAT FRAUD: The Public Treasurers’ Handbook on Tightening Controls and Reducing Employee Fraud”. Available shortly, this brand new Handbook is an outstanding tool.
Introduction
To begin tightening controls and reducing fraud, the public treasury official needs to:
Make certain that elected public officials, directors, and managers believe that internal controls are important (auditors call this “Tone at the Top”).
Ensure that the government establishes the proper separation of duties between key employees and managers to reduce the likelihood that one person would be able to completely control a process or function from beginning to end. Two critical issuesassociated with this internal control are:
Don’t tempt employees.
Don’t put employees at risk.
Ensure that systems are put in place to monitor all revenue streams. This includes:
Identifying all revenue sources and fees.
Determining where the revenues enter the organization
Including the revenues in the budget. During this process, managers must decide what analytical procedures are best suited to determine the expected amount of revenue from each source
Monitoring budget versus actual to ensure that the total amount of revenue matches your expectations.
Ensure that systems are put in place to review all disbursements for propriety
Table of Contents
Fraud Training Manual Introduction
Foreward
About the Author
Acknowledgements – Author’s Professional Organizations
Plan for Success
Planning for Success in Fraud Cases – Reporting Requirements
Planning for Success in Fraud Cases – Facts and Case Development
State of Washington Fraud Statistics (1987-2003)
The Fraud Triangle – Association of Certified Fraud Examiners
The Trusted Employee
Segregation of Duties
But What About Collusion? Should my Organization be Concerned?
What Can my Organization do to Combat This Troubling Condition?
When is Fraud Commonly Detected by the Organization?
What Must my Organization do When Fraud is Suspected or Detected?
Causes of Fraud
Brief Checklist to Identify “At Risk” Employees
The System of Internal Control
Four Troublesome Internal Control Areas for Fraud
Methods Used to Launder Organization Revenue and Disbursement Checks
Twenty Danger Signs of Embezzlement
Forty Common Forms of Fraud
Fraud/High Risk Decision Process (Auditor or Manager Mind-Set)
Summary
General Fraud Information
Fraud Definitions
Fraud Concepts – General
Fraud Concepts - Cash Receipts
Fraud Concepts - Cash Disbursements
A Suggested Internal Control Guide for Management Officials
Cash Receipting Fraud Schemes
Check for Cash Substitution Scheme
Case Study
Training Example
Lapping Scheme
Accounts Receivable Schemes
Accounts Receivable-Internal Control Structure–Duties of Personnel
Chart Depicting Segregation of Duties in Accounts Receivable Systems
Types of Accounts Receivable Fraud Schemes
Summary of Major Areas of Concern in Accounts Receivable Systems
Summary of Audit Tests Designed to Detect Fraud in Accounts
Receivable Systems
Typical Accounts Receivable Fraud Scenario
Case Studies
Cash Register Schemes
Training Example
Computer Cash Receipt Schemes
Cashiers Who Place Personal Checks in the Till Drawer
Cashiers Who Collect the Money and Steal It
Cashiers Who Establish Their Own Accountability
Case Study
Cashiers Who Alter Cash Receipts After Issue
Cashiers Who Use Multiple Receipt Books
Cashiers Who Make Short Deposits
“Free” Access to Safes and Vaults and No Fixed Responsibility
No Decentralized Direct Deposits
Retail Sales Activity Schemes
Critical Path for Success in Any Associated Student Body (ASB) Fund
ASB Fund Common List of Concerns
ASB Funds – What is Public Versus Private Money
Internal Controls Over Retail Sales Activity
Training Example
Retail Sales Activity Loss of Funds Case – ASB Fund
Checking Account Schemes
Establishing Bogus Organization Checking Accounts
Cash Disbursing Fraud Schemes
Accounts Payable or Cash Disbursements Fraud Concepts to Remember
Case Study
Employees Issue Prenumbered Checks to Cash, to their Personal Business, or to Themselves
Case Studies
Employees Issue Blank Checks to Themselves
Case Study
Employees Issue Prenumbered Checks to Fictitious Companies
Caseworkers Who Process Fictitious (or Duplicate) Authorizations for
Service in Public Benefit Programs
Computer-Related Fraud in Government Agencies: Perpetrator Interviews
Retirement System Schemes
Payroll Schemes
Concepts to Remember About Payroll
The Five Most Common Payroll Fraud Schemes
Case Studies
Summary of Payroll Fraud Cases
Payroll Analytical Procedures and Computer Assisted Audit
Techniques (CAATs)
Other Payroll Attributes and Audit Tests
Electronic Funds Transfer Schemes
Unmonitored Personal Service Contract Schemes
Employees Manipulate, Misuse, or Abuse Miscellaneous Organization
Disbursements
Assets and Personnel
Credit Cards
Telephone
Travel
Internal Controls for Travel
Typical Travel or Petty Cash or Time Card Fraud Scenario
Unauthorized Conversion of Duplicate Checks
Stealing and Converting Blank Check Stock
Purchasing and Contracting Fraud Schemes
Purchasing and Contracting Schemes
Employees Acting Out of Character
Purchase Order Document (Example)
Accounts Payable Attributes Signaling the Possibility of Wrongdoing
