Continuing with the theme of fraud prevention, this issue looks at another fraud case involving an easily overlooked internal control.

Cheaters never win!

I’m a huge Carolina Hurricanes fan and, when a player from the opposing team is charged with a penalty, the crowd yells, in unison, “Cheaters never win!”. Such is the case with most fraud cases, although it may go undetected for a long time. Eventually, the fraud is going to be discovered and the perpetrator penalized.

In today’s example, an employee tried to circumvent the system when new customers paid their security deposit in cash. Rather than add the deposit to the service application, this employee pocketed the cash.

The employee was savvy enough to exploit a weakness in the system and still manually created a deposit record for the new customer. By doing so, the customer would still have their deposit applied to their final bill, just as if the deposit had been processed normally, and not draw attention to the missing deposit.

Poor internal controls

Unfortunately for this utility, they weren’t reconciling deposits from the utility billing system with the general ledger. If they had been, this fraud would have been caught early on, rather than going undetected for several years.

Because the cash wasn’t processed through the system, the deposit was never credited to the security deposit account in the general ledger. Had the utility been following good internal controls, the subsidiary ledger from the utility billing system would be periodically reconciled with the general ledger. In doing so, this discrepancy would have easily been discovered.

General ledger reconciliation

Are you reconciling security deposits and accounts receivable from reports within the utility billing system with the general ledger on a regular basis? If not, now is a great time to start!

Will you please do me a favor?

The 2024 Utility Staffing Survey will be drawing to a close soon. If you haven’t already completed the survey, would you please take a few minutes to complete the survey?

If you have any questions, please feel free to e-mail me at gary@utilityinformationpipeline.com or call me at 919-673-4050.

Thank you in advance for your participation in the 2024 Utility Staffing Survey.

Are your internal controls adequate?

Are your office’s internal controls adequate? If they aren’t, or you aren’t sure, please give me a call at 919-673-4050, or email me at gary@utilityinformationpipeline.com to learn more about how a business review could help you find out.

© 2024 Gary Sanders