Recently, I’ve been giving some thought to a new presentation dealing with fraud prevention. The working title is Safeguarding your Business Office Against Fraud.
It will draw upon my experiences with the handful of fraud cases I either worked with investigators on, or learned about over the course of my forty-plus year career. In each and every case, better internal controls could have prevented the fraud from happening.
Today, let’s take a look at one of those scenarios.
Separation of duties
The concept of separation of duties means that no one person should be responsible for the entire life cycle of a transaction. For example, the same person shouldn’t be producing bills, taking payments, and making adjustments. Likewise, the same person shouldn’t be receiving, reconciling, and depositing cash.
Ideally, in any office, there is sufficient staff to separate these duties. However, in reality, especially for smaller offices, this just isn’t feasible. This is where instituting proper internal controls is imperative.
Real-life scenario
In this case, one employee was responsible for taking payments and making adjustments. Over the course of three years, this employee pocketed over $93,000 in cash payments from customers and made adjustments in the system to offset the customer’s balance.
Due to poor internal controls, no one in the office was reviewing the adjustments report each month, so this went undetected. It was only when the employee failed to adjust one account, and the customer questioned why their payment wasn’t credited, that the fraud was detected.
Proper internal controls
Many utilities, due to limited staff, find themselves in a situation where the same person that takes payments also makes adjustments. If your office is in a similar situation, proper internal controls dictate that someone other than the employee making the adjustments review them to ensure they are legitimate.
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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