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n An Association of Certified Fraud Examiners study confirmed that in fraud, the more authority a person has, the greater the loss. This makes sense because a person with more authority has greater access to resources and the greater ability to override controls in order to conceal the fraud.


of labor or supplies, and issuing kickbacks. [Tese schemes can get rather elaborate and do not seem to be as prevalent as they were in years past.] •


“Payroll fraud” includes claims of overtime or comp time for


hours not actually worked, or the addition of “ghost employees” to the payroll. Payroll fraud can get very complicated and creative. Tere are counties that can vouch for the creativeness of payroll fraud. •


Expense reimbursement cases include filing false expense


reports, claiming nonexistent meals, mileage, etc. Teft and fraud may take several forms. It may be as simple as an of- ficial or employee writing a check to himself/herself, but recording in the county records that the check was written to a vendor. It may involve a failure to deposit all county funds into county accounts. It may involve submitting personal expenses as employee expenses, or altering invoices presented to the county for payment. Te most common fraud for small organizations involves check tampering. Tis occurs when only one individual has access to the checkbook and also the responsibility for recording payments and/or reconciling the bank statements. Small office operations, where a limited staff can make it difficult to segregate duties, can be particularly susceptible to this type of fraud. You may think these types of things don’t really happen – but they do!


Sometimes they happen because – frankly some people are not honest. Others are in dire straits financially and they think they’ll just “borrow” a little for a while. Of course, even these normally trustworthy people have a lapse in “honesty” or they would not steal. As George Knight said, “Dishonesty is never impulsive.” It has been said many times that we almost force our local and state officials to be dishonest because we pay them so little for what we expect from them. While this may be true anecdotally and low pay in many areas should be addressed – this situation should never be the reason for doing wrong. How fraud happens An ACFE study confirmed that in fraud, the more authority a person has, the greater the loss. Tis makes sense because a person with more authority has greater access to resources and the greater ability to override controls in order to conceal the fraud. Te study also found a direct correlation between the length of time an employee has been employed and the size of the loss. An employee’s tenure is likely related both to trust and to opportunity. Te more trust placed in an employee, the greater the person’s opportunity to commit fraud. Long-term employees may also be the most familiar with gaps in the office operations and controls, which may help them avoid detection more easily.


COUNTY LINES, WINTER 2014


Of course, every organization wants to have some long-time, trusted


employees – but when the public trust is at stake everyone must be ac- countable. Procedures to reduce the risk of theft To reduce the risk of theft, every county should implement basic safe-


guards. An environment of accountability should be created. Segregation of duties is critical. Simply put, no official or employee should be in a position to commit an irregularity and then conceal it. To help prevent that from happening, responsibilities in financial transac- tions should be divided amongst more than one person, or segregated. An example of segregation of duties taken from everyday life is a movie theater, where one person sells tickets and another person collects the tickets. Tis separation of duties helps prevent the person selling the tickets [the one handling the money] from: (1) collecting the price of the ticket, but allowing entry without a ticket – allowing the ticket seller to pocket the ticket payment without being detected; or (2) allowing entrance without the purchase of a ticket. Examples of incompatible duties that should be performed by separate individuals are: • Receipting collections, posting collections and making bank deposits; • Signing checks and reconciling the bank accounts. Even with personnel cuts, financial duties should remain segregated. Counties may need to be creative and segregate duties by involving employees who have not previously played a role in financial transactions. For those offices with only two employees – the official and one employee – regularly switch office duties and look over each other’s work. With of- fices with only one person – well, just remember you have been entrusted to do what is right. Don’t mess it up! Internal Control Procedures. Many internal control procedures are common-sense methods used to track county funds. Here are a few pro- cedures that may help prevent thefts or allow earlier detection of thefts: • Have checks written to the county; • Endorse checks for deposit as they are received; • Make daily deposits; • Reconcile receipts with deposits; • Contact your bank or banks to: prohibit cash withdrawals and check cashing from the county account, and be sure authorized signatures are up-to-date; • Do not pre-sign any checks;


See “Fraud” on Page 23 >>> 21


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