AAC F A M I L Y F R I E N D S » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » » Fraud
• Reconcile bank statements regularly. With on-line banking you can do it daily in a matter of minutes; and • Require detailed original receipts for the reimbursement of employee expenses. And remember, under Arkansas law, financial institutions must
provide government entities either the cancelled checks or optical images of both the front and back of the checks. By comparing the cancelled checks with your financial records, discrepan- cies may be detected. Internal control procedures help reduce the
opportunity for fraud to be committed. Red flags in detecting theft and fraud Teft can result from poor segregation of
duties. Possible indicators of theft, or “red flags”, include instances when an employee: • Takes records home; • Takes on duties that should be segregated; • Works hours when others are absent; • Refuses to take vacations or time off. Teft can also result from noncompliance with internal control procedures. Some red flags to watch out for: • Submitting copies, rather than original
ituations involving cash transactions pres- ent special risks and require extra diligence.
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invoices for payment, may indicate that an altered document is being submitted; • Deposits are late; • Receipts are not reconciling with deposits; • Checks are written out of sequence. Most fraudsters in government are first time offenders with clean
employment histories. Te vast majority of fraudsters in county govern- ment had never before been charged or convicted of a fraud-related offense and had never been punished or terminated by an employer for fraud-related conduct. It is noteworthy that most who are charged with some type of theft or fraud displayed one or more behavioral red flags that are often associated with fraudulent conduct. Te most commonly observed behavioral warning signs are these: • Living beyond means; • Financial difficulties; • Unusually close association with vendors or customers; and • Excessive control issues. Situations involving cash transactions present special risks and require extra diligence. Even small offices or departments must implement basic safeguards to reduce theft. Exposing fraud Frauds are generally ongoing crimes that can continue for months or
even years before they are detected. According to the report issued by the ACFE frauds reported lasted a median of 18 months before being detected. Some of you may remember an incident in Arkansas county government that happened a number of years ago. A county official took a large amount of money on a year-end transaction for ten years in a row before being detected by the Division of Legislative Audit. An audit procedure was put in place after that which keeps that type of fraud from going undetected.
Te most common method of detecting fraud is by a tip or complaint – when another person becomes suspicious of fraudulent activity and notifies someone. Frauds are also detected by internal and external audit,
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internal controls, and even by accident. While external audits, such as the ones Arkansas counties are subject to by the Division of Legislative Audit, serve an important purpose and can have a strong preventive ef- fect on potential fraud, their usefulness as a means of uncovering fraud is somewhat limited. In other words, don’t rely on the audit as your prima- ry fraud detection method. Among the most effective internal controls a workplace can employ are job rotation and mandatory vacation. Te study and report also showed that
over half of the tips were from fellow em- ployees. Tis reinforces the need for county government to maintain open channels of communication so employees are comfort- able bringing forward their concerns. I do understand, however, that when the fraud is being perpetrated by the county official the willingness of the employee to come forward is somewhat dampened – but it is still the right thing to do. Fraud is preventable and can be stopped
through strong internal controls and internal and external audits. Fostering an atmo- sphere of open communication with county staff can also be a strong measure to prevent and detect fraud. I have always heard “hon-
esty pays” – but, according to Kin Hubbard, “it doesn’t pay enough to suit some people.” And because of that it behooves us all in government to spend the extra time and make the special effort to guard the public treasury in order to preserve the public trust. A special note to county officials I served as an elected county official for many years, so I understand the gargantuan responsibility – the load you must bear. Many times without proper compensation for the job and too many times without a sufficient appropriation to properly carry out the functions of your office. But you have sworn to carry out the duties of your office and to uphold the laws of this country, this state and your county. To do that you must know what the laws are. Te laws governing Arkansas county government are expansive and to
know the law it takes relentless study. Learning the law and applying the law are two different things. Learning the law is attained knowledge – but it takes wisdom to apply it correctly and efficiently and impartially. It takes effort, but seek wisdom – search for it. Wisdom is simply the proper application of knowledge. Knowing the law that governs you and the laws that you are to administer in the operation of your office will keep you from making ethical missteps and be a reminder of the public trust reposed in you. As Davis Starr Jordan, founding president of Stanford University said, “Wisdom is knowing what to do next; virtue is doing it.” Serving as an elected county official is a sacred responsibility and your personal and professional integrity should be paramount. Even if you don’t get caught doing wrong – you have still done wrong and broken the trust the people have placed in you. And, as the old saying goes, “Men are not punished for their sins, but by them.” No truer words have ever been spoken than the words of Martin Luther King, Jr. when he said, “Te time is always right to do what is right.” “Every job is a self-portrait of the person who does it. Autograph your work with excellence.”
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