Internal Controls Yeah right Brad Harris CPA CMFO
Internal Controls? Yeah right… Brad Harris, CPA, CMFO Finance/Accounting Consultant – MTAS
Why do we need internal controls? Things we read in the newspaper or see online: The city recorder misappropriated city funds. The former city recorder charged personal purchases to credit cards that were issued in the name of the city. The city recorder wrote unauthorized payroll checks to himself or herself. A former employee of a school district diverted funds from the district and spent the money on a variety of personal expenses. • An elected official used city funds for personal benefit. • • How could this happen? Who is responsible for oversight? Why didn’t someone notice? Why didn’t someone report this?
FRAUD What is fraud? The Merriam-Webster Dictionary defines fraud as “deceit, trickery; an intentional perversion of truth in order to induce another to part with something of value. ” Fraud is a crime where an individual, by using deceptive and dishonest means, takes something of value from another. In effect, a person who commits fraud pretends to be someone they are not or pretends to do something they are not to steal from someone else.
What characterizes a person who commits fraud? Usually this is a person experiencing some type of pressing need or desire that they cannot afford. The fraudster can be anyone in the organization but is often a person in a position of responsibility who has access to the organization’s money or other assets that can be taken or misused. As the need or desire grows within the fraudster, pressure builds and they begin to rationalize or justify why they deserve more of the organization’s resources for their personal use and benefit. In their mind, their actions in committing the fraudulent acts are not really stealing at all. Sometimes, the justification is that they are only borrowing for a short time and they have every intention of paying back every penny they have stolen. WOULD YOU TAKE MONEY IF YOUR CHILD’S LIFE DEPENDED ON IT?
Some opening thoughts… 1) As finance people, we do NOT want to hear “I saw you in the paper” 2) When we die, the only thing we can take with us is our integrity 3) What is that worth to you? 4) Brad Harris, CPA, CMFO, CCW, AGG these are worthless if I compromise my integrity
Should you… • Require every employee and governing body official to complete an annual form identifying and potential conflicts of interest? • Develop a code of professional conduct that is given to every employee upon hire? • Do employees understand what happens if they intentionally do something unethical or illegal? The oversight body and management should demonstrate a commitment to integrity and ethical values.
Should you… • • Develop a job description for every position? Require annual training? Of what? ? Encourage improvement in capabilities (earning CMFO, etc. )? Perform periodic job evaluations? Management should demonstrate a commitment to recruit, develop, and retain competent individuals.
Should you… • Develop a job description for every position? • Require annual training? Of what? ? • Encourage improvement in capabilities (earning CMFO, etc. )? Management should demonstrate a commitment to recruit, develop, and retain competent individuals.
Should you… • Segregate duties and rotate job responsibilities when possible? • Allow excessive overtime and weekend work? Management should evaluate performance and hold individuals accountable for the internal control responsibilities.
Should you… • Allow more than one employee to work from the same cash drawer? Why or why not? • Let the same person open mail and receipt and deposit checks? • Let the same person create new vendors and subsequently pay them? Management should design control activities to achieve objectives and respond to risks.
Former Madison County Booster Club Treasurer Indicted for Theft Investigation Details Improper Activity by La. Follette Mayor Former Greene County Sheriff’s Department Employee Pleads Guilty to Theft Former Lincoln County School Bookkeeper Indicted for Theft Former Tellico Plains Elementary PTO Treasurer Stole More Than $22, 000
https: //comptroller. tn. gov/officefunctions/investigations. html
Let’s take a poll… I work in an office with_____ people. a) b) c) d) 1 2 3 more than 3 In my office, ______ other person(s) can do pretty much what I do. a) I’m the recorder, payroll clerk, engineer, and custodian b) one other person c) two or more persons
How are you supposed to ‘minimize risk’ if you are the only person in the office? Someone has to be willing to be a second set of eyes Mayor Vice Mayor Another council member who can be available You never should be the only set of eyes on anything! Call it CYA or whatever, but two things here: • You have to protect the assets of the city and its citizens • You need to protect yourself
With the remainder of our time, let’s brainstorm together to come up with ideas for minimizing risk. Who can help you?
Brad Harris 423 -718 -0797 Brad. harris@Tennessee. edu
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