Is your district fraud-proof? Fraud can be difficult to detect, especially if it’s the work of someone who understands the district and knows how to cover up criminal behavior for months, or even years. Even trained auditors may not see the signs, particularly since financial audits are not designed to uncover fraud. Failing to detect fraud can lead to financial losses for the district as well as a loss of credibility with the public.
Fortunately, there are ways to reduce or even eliminate fraud. With clear policies and procedures in place and a culture that supports ethical behavior and promotes transparency, your district is less likely to be a victim.
Seven Steps to Prevention
Here are some key steps for preventing and detecting fraud in your district:
- Establish and observe a clear code of ethics. Employees at every level of the district should know without question that any level of fraud or theft will not be tolerated.
- Create an open work environment in which honesty and transparency are valued and rewarded. Duties should be divided so no one person has complete control over a key function or activity and his/her activities are visible to others.
- Make sure your district has a mechanism, such as an anonymous tip line, for people to report activities that may be fraudulent.
- Find ways to reassure people so they feel safe and comfortable coming forward if they suspect fraud. Employees are less likely to speak up if they fear retaliation.
- Make sure you have a sound system of internal controls in place. Review and update them regularly.
- Periodically apply forensic auditing techniques as a spot-check and safeguard. You don’t have to undertake a full forensic audit; individual tasks such as comparing actual spending activity to estimated or budgeted amounts, then investigating variances, are very useful. Consider asking your financial auditor to include data analytics as part of their audit procedures.
- Unusual transactions should be reviewed, including amounts close to limits, transactions on unusual days of the week or times of day, and payments to unrecognized vendors or third parties. Adjusted journal entries, particularly at year-end, should be reviewed, as should any unusual documentation, such as checks cashed rather than deposited, invoices with the same date as the purchase order, or unusually “clean” documents.
How Forensic Accountants Can Help
Forensic accountants are trained to identify fraud at every level. While forensic accountants typically are hired after fraud has taken place, we can also work with your district’s administrators to uncover red flags that may warn of potential fraud. A forensic accountant can examine current internal controls and, based on possible scenarios, upgrade your district’s processes and procedures.
We would all sleep better at night if we could eliminate fraud entirely. While that may not be possible, these steps can take you a long way towards protecting your district’s finances and its reputation. If you have questions about these steps, contact a Weaver professional today.
Authored by Travis Casner, CFE.
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