Iberville Parish School Board

Transcription

1 Iberville Parish Schl Bard Risk Factrs and Fraud Preventin Risk Identificatin Risk identificatin attempts t identify an rganizatin s expsure t fraud and uncertainty. The prcess f identifying risk expsure shuld be cmpleted at least annually and is key t the success f a risk management prcess. Risk expsures may arise frm a variety f internal and external surces such as emplyees, criminals, and acts f nature. An explanatin f the types f risks are listed belw. Unintentinal Errrs Errrs may appear in input data during prcessing and appear n a randm and accidental basis. Deliberate Errrs Deliberate errrs cnstitute fraud since they are purpsefully made t secure unlawful r unfair gain. Deliberate errrs may be made t cnceal thefts and lss f assets. Unintentinal Lss f Assets Assets may be lst r misplaced by accident. Thefts f Assets Assets f an rganizatin may be stlen by utsiders r misapprpriated thrugh embezzlement. Emplyees wh embezzle ften create deliberate errrs in rder t hide their thefts. Breaches f Security Unauthrized persns may gain access t data files and reprts f a firm and alter the infrmatin. Security breaches als include unauthrized access t the vault. Acts f Natural Disaster Prper care shuld be taken t ensure a backup f all files in the accunting database in case f fires, shrt circuits, and natural disasters. At least ne set f backup cpies shuld be maintained at a fireprf lcatin that is physically remved frm the central rganizatin. An emergency plan shuld be set in place immediately after a disaster. A recvery plan ensures that a skilled recvery team is frmed t recnstruct and restre full peratinal capabilities f the accunting system. Risk Assessment The degree f risk expsure shuld be assessed in rder t cmbat risks effectively. Expsure t risk is affected by the fllwing factrs: 1. Frequency. The mre frequent an ccurrence, the greater the expsure t risk. 2. Vulnerability. The mre vulnerable an asset, the greater the expsure t risk. Cash is highly vulnerable t theft since it is easily hidden. 3. Size. The higher the mnetary value f a ptential lss, the greater the risk expsure. Sme factrs that heighten the risk faced by a firm are caused by varius internal cnditins:

2 1. Cllusin. The cperatin f tw r mre emplyees fr a fraudulent purpse. Cllusin may als invlve an emplyee and nnemplyee which is knwn as external cllusin. Either type is difficult t cunteract. 2. Lack f Enfrcement. Lack f actin by management r nt seeking prsecutin fr wrngders may encurage ther emplyees t cmmit fraud. 3. Cmputer fraud. Cmputer fraud pses very high degrees f risk since all f the abve expsure factrs seem t be present. A cmputer as well as its stred data is vulnerable t unauthrized access and damage. The Fraud Triangle In analyzing the risk f fraud, the fraud triangle invlves the three elements that have t be present fr fraud t ccur. Pressure Pressure is what causes a persn t cmmit fraud. Pressure can include almst anything including medical bills, expensive tastes, addictin prblems, and debt. Mst f the time, pressure cmes frm a significant financial need r prblem. Often this prblem is nn-sharable in the eyes f the persn cmmiting the fraud. The persn believes that fr whatever reasn, their prblem must be slved in secret. Hwever, sme frauds can be cmmitted simply ut f greed alne. Opprtunity Opprtunity is the ability t cmmit fraud. Because peple cmmiting frauds d nt wish t be caught, they must als believe that their activities will nt be detected. Opprtunity is created by weak internal cntrls, pr management versight, and thrugh the use f nes psitin and authrity. Failure t establish adequate prcedures t detect fraudulent activity als increases the pprtunities fr fraud t ccur. Of the three elements, pprtunity is the piece that rganizatins have the mst cntrl ver. It is essential that rganizatins build prcesses and cntrls that d nt put emplyees in the psitin t cmmit fraud. Ratinalizatin Ratinalizatin is a crucial cmpnent in mst frauds. Ratinalizatin invlves a persn recnciling his r her behavir (stealing) with the cmmnly accepted ntins f decency and trust. Sme cmmn ratinalizatins fr cmmitting fraud are: The persn believes cmmitting fraud is justified t save a family member r lved ne The persn believes they will lse everything family, hme, car, etc. if they d nt take the mney The persn believes n help is available frm the utside

3 The persn labels the theft as brrwing and fully intends t pay back the stlen mney at sme pint The persn thinks that the mney is wed t him r her because f jb dissatisfactin The persn is unable t understand r des nt care abut the cnsequence f their actins The persn des nt believe that management will take any disciplinary actins Risk Mnitring and Preventin Steps management shuld take in preventing the ccurrence f fraud invlve ensuring the prper segregatin f duties. Prcess Cntrl Cnsideratins Recmmendatin Examples f Cmpensating Cntrls Bank Recnciliatins Des the emplyee respnsible fr preparing bank recnciliatins als have any f the fllwing respnsibilities: Receive cash receipts Prepare cash depsits The preparer shuld nt have the respnsibility fr recrding cash receipt r disbursement transactins. In additin, bank recnciliatins shuld be reviewed and apprved by an emplyee ther than the preparer. Perfrm a review f cash receipt and cash disbursements entries in the general ledger. Cmpare cash receipts and disbursement amunts t budgets. Generate r print checks Execute r authrize wire transfers Sign checks Have access t blank check stck Purchasing Des the emplyee initiating the purchase requisitin als have the authrity t apprve the purchase requisitin? Purchase requisitins shuld be reviewed and apprved by smene ther than the emplyee initiating the purchase requisitins. A supervisry-level emplyee independent f the purchasing functin reviews a reprt f ttal purchases as well as purchases ver a predetermined threshld fr new vendrs. Purchasing Are the emplyees respnsible fr initiating a purchase requisitin als respnsible fr initiating the purchase rder presented t the vendr? Purchase rders shuld nly be generated by emplyees in the purchasing department. These emplyees shuld nt have access t generate r authrize purchase requisitins.

4 Purchasing D the same emplyees wh are respnsible fr initiating r apprving a purchase rder als perfrm any f the fllwing duties: Mdify the vendr master file Recrd vendr invices in the cash disbursement system Emplyees invlved in the purchasing functin shuld nt have recrd-keeping respnsibilities in the cash disbursement system. They als shuld nt be able t alter the vendr master file. A system reprt f purchase rders issued t vendrs shuld be generated and reviewed by a supervisry-level emplyee wh is nt invlved in initiating purchase rders with vendrs. Receive vendr gds physically Mdify r recncile inventry recrds Receiving D emplyees invlved in receiving gds als perfrm any f the fllwing duties: Invlved in purchasing prcess Emplyees wh are respnsible fr the receipt f gds frm vendrs shuld nt be invlved in the purchasing r cash disbursement prcess. An emplyee independent f the purchasing prcess checks the bills f lading t the receiving reprts t inventry accunting. Mdify the vendr master file Recrd invices r returns Cash Disbursement Prcessing Des the emplyee perfrming the three-way match f purchase rder, receiving dcument, and vendr invice als perfrm any f the fllwing: Invlved in purchasing r receiving prcess Emplyees invlved in recrding vendr invices in the cash disbursement system shuld perfrm the three-way match f purchase rder, receiving dcument, and vendr invice. Mdify the vendr master file Has recrd-keeping respnsibilities fr inventry, purchases, payables, r returns Vendr Set-up Des the emplyee respnsible fr the Vendr Master File als perfrm: Recrding vendr invices Apprve vendr invices The emplyee respnsible fr mdifying the Vendr Master File shuld nt be respnsible fr entering vendr invices in the cash disbursement system r have the ability t generate and authrize cash disbursements. An emplyee independent f the accunts payable and disbursement prcess perfrms a review f a systems reprt utlining the Vendr Master File changes.

5 Print r sign checks Execute r authrize wire transfers Cash Disbursements D the emplyees respnsible fr apprving invices and payments als have the ability t recrd payables? Emplyees respnsible fr authrizing vendr invices and payments shuld nt have the respnsibility fr recrding invices in the cash disbursement system. Perfrm a regular analytical review f the cash disbursements and require cash disbursement checks t have dual signatures. Cash Disbursements D the emplyees respnsible fr printing checks r wh have access t blank check stck als perfrm any f the fllwing duties: Emplyees respnsible fr printing vendr checks shuld nt have respnsibility fr these listed duties. Create psitive pay file Transmit the psitive pay file t the bank Have access t r respnd t bank ntificatins abut discrepancies between the psitive pay file and checks presented at the bank Prepare r review and apprve the bank recnciliatins. Wire Transfers Can ne emplyee initiate and apprve a wire transfer? Initiatin and apprval (release) f wire transfers shuld be segregated between tw emplyees. Payrll D the same emplyees respnsible fr preparing payrll fr prcessing als perfrm any f the fllwing duties: Mdify the emplyee master file The file prepared fr prcessing payrll shuld be reviewed and apprved by an emplyee wh is nt invlved in the preparatin f this payrll file r part f the human resurces functin. Apprve the payrll Generate and distribute payrll checks Receive final payrll reprts

6 Payrll Are undistributed payrll checks and rejected payrll direct depsits investigated and recnciled by a supervisry emplyee utside f the payrll functin in a timely manner? Payrll Des the emplyee respnsible fr recnciling the general ledger t the payrll system als have the ability t recrd entries in r make adjustments t the payrll system? Recnciliatin shuld be perfrmed by an emplyee wh des nt have mdificatin rights t the payrll system. Inventry D the emplyees with custdy f and access t inventry have the respnsibility t perfrm any f the fllwing functins: Perfrm physical inventry cunts Mdify perpetual inventry recrds Emplyees wh have access t the physical inventry shuld nt be respnsible fr perfrming inventry cunts. Mdificatins t inventry recrds shuld be reviewed and apprved by a supervisry-level emplyee wh is independent f the inventry prcess. Recncile the physical inventry cunts t the perpetual inventry system Recncile perpetual inventry recrds t the inventry balance per the general ledger Recrd write-ffs in the perpetual inventry system r general ledger Calculate and recrd the inventry reserves Fixed Assets Are the emplyees respnsible fr apprving the purchase r dispsal f the fixed assets respnsible fr any f the fllwing functins: Recrd the transactin (add, delete, write-ff r dispse assets) in the fixed asset ledger Determine the useful life f the fixed asset Determine the cmpany s depreciatin plicy Emplyees respnsible fr purchases r dispsals f fixed assets shuld nt have access t recrd transactins in the fixed asset ledger. The useful life f the fixed asset shuld be determined based n GAAP and entered in the system by a finance emplyee respnsible fr maintaining the fixed asset ledger.

7 Accunts Receivable Recrd r adjust the calculated depreciatin n the fixed asset Dispsal f the fixed asset D emplyees wh have the ability t pst payments r recrd adjustments t accunts als receive payments? Emplyees wh have the ability t mdify the accunts receivable balance shuld nt receive payments. Other management cnsideratins: Have the mail picked up by an emplyee wh has n respnsibilities related t handling r recrding f depsits, accunts receivable recrds r revenues. Mnitr the bank statements. Be n alert fr: Missing checks Checks issued ut f sequence Unknwn payees Checks that appear t have been altered Checks nt signed by authrized signatries Mnitr the accunts payable. Be n alert fr: Unknwn vendrs Vendrs with names similar t knwn vendrs Vendrs with n physical address r telephne number Vendrs whse addresses match emplyee addresses Perfrm thrugh backgrund checks n all new emplyees. Require uninterrupted vacatins fr all emplyees and establish a schedule f rtatin f emplyee respnsibilities. Be alert t changes in emplyee attitudes, behavir, and lifestyles and indicatins f severe stress r dissatisfactin with cmpensatin. Prvide emplyees an pprtunity t reprt the ccurrence f fraud r ther abuse annymusly. Take strng actin against emplyees wh cmmit fraud.