Delivering Financial Oversight: Strengthening Your Policies and Procedures

Transcription

1 Delivering Financial Oversight: Strengthening Your Policies and Procedures Aaron J. Mansfield, CPA, CFE, Manager October 13, Dennis, Gartland & Niergarth Certified Public Accountants/Business Advisors

2 Why we care about internal controls Typical organization loses 5% of revenues each year to fraud Applied to 2013 Gross World Product, this translates to a potential projected annual fraud loss of nearly $3.7 trillion The median loss caused by occupation fraud cases was $145,000 2

3 Fraud in the Headlines Check Fraud Hits Catholic Community Foundation 12/08/11 Ex-Silicon Valley Nonprofit Chief Accused of Misusing Funds 11/6/12 Former Bon-Ton Stores Foundation Employee Sentenced to Prison for Fraud 2/26/14 ($1.3M) 3

4 Fraud in the Headlines (Continued) Former County Commissioner in MI Accused of Embezzling $100+K from Trust for Elderly Man 2/27/14 MI Pastor Indicted on 5 Counts of Embezzlement for Alleged $700K Church Theft 4/25/14 Tenn. CEO, MI Branch Manager Face Fraud Charges 6/13/14 4

5 Occupational Fraud The use of one s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization s resources or assets. 5

6 6 The Fraud Triangle

7 Pressure/Motivators 7 Living beyond means Personal gain High personal debt Close with customers Feel underpaid Wheeler-dealer Challenge to beat system Excessive gambling Family or peer pressure

8 Rationalization Noncriminal Justified Situation offenders do not control 8

9 Opportunity Remove the opportunity Establish control mechanisms Segregate duties Perception 9

10 Control Mechanisms Foundation policy Selection of personnel Security of assets Punishment 10

11 Perception Not necessarily reality Perceived detection inversely related to theft Informal social controls 11

12 Segregation of Duties Authorization Recording Custody 12

13 Prevention Good Luck! Deterrence is really what we are discussing Significant decreases in cost and duration 13

14 Cash Foundations most desirable asset Segregate duties Consider outside help for small offices 14

15 Cash Receipts Collect accounts receivable Open the mail Prepare deposits Post cash receipts to accounts receivable subledger 15

16 Cash Receipts Review the accounts receivable aging trial balance Authorize write offs of delinquent accounts Investigate accounts receivable discrepancies 16

17 Cash Receipts Edit the accounts receivable master file Process customer service calls and complaints Investigate discrepancies or issues related to revenue Reconcile bank accounts 17

18 Other Cash Receipts Considerations Receipts are deposited intact promptly or stored in secure location Bank reconciliations are prepared and reviewed in a timely fashion Journal entries reviewed and limited to few individuals 18

19 Cash Disbursements Review, authorize or sign checks Initiate checks for expenditures Prepare checks Mail checks Edit the vendor master file 19

20 Cash Disbursements Investigate discrepancies or issues involving expenditures Open the mail Reconcile bank accounts 20

21 Other Cash Disbursements Considerations System rejects duplicate entry of invoice from a vendor Purchase order, receiving report, and invoice are matched and canceled prior to payment Subledger reconciled to general ledger 21

22 Other Cash Disbursements Considerations Checks are pre-numbered, the sequence is accounted for regularly, and unissued checks are controlled and kept in a secure location Check signer reviews all supporting documentation prior to signing 22

23 Bank Statements Bank statements should be received and reviewed by a responsible person other than the person who reconciles the bank account before being submitted for reconciliation 23

24 Payroll Prepare payroll checks Sign payroll checks Review and authorize electronic payroll disbursements Resolve employee payroll inquires Edit the payroll master file 24

25 Other Payroll Considerations Bank reconciliations done timely Access to employee information restricted/ability to add new employees restricted Compare current payroll with prior and investigate differences 25

26 Recommendations Employee background checks Internal controls Inspect what you expect Tone at the top Watch for red flags 26

27 Recommendations Get a controls check-up Cash is king Just ask Establish authority levels Bank statements 27

28 Observations Not complicated Too much trust 28

29 Summary Typical fraud schemes continue for years before detected Lack of internal controls is the most commonly cited factor that allows fraud to occur Occupational fraudsters are generally first time offenders Small businesses are especially vulnerable to fraud 29

30 Next Steps What can be done today? Remove the opportunity Route bank statements to owner Ask questions Discuss controls with banker, CPA or other trusted business advisor 30

31 31