Where’s the Money Going? 10 Things You Should Know about Internal Controls and Fraud Donna S....
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Transcript of Where’s the Money Going? 10 Things You Should Know about Internal Controls and Fraud Donna S....
![Page 1: Where’s the Money Going? 10 Things You Should Know about Internal Controls and Fraud Donna S. Brown, CPA Bob Powell, CPA November 12, 2010.](https://reader030.fdocuments.in/reader030/viewer/2022032604/56649e695503460f94b66928/html5/thumbnails/1.jpg)
Where’s the Money Going?
10 Things You Should Know about Internal Controls and Fraud
Donna S. Brown, CPABob Powell, CPA
November 12, 2010
![Page 2: Where’s the Money Going? 10 Things You Should Know about Internal Controls and Fraud Donna S. Brown, CPA Bob Powell, CPA November 12, 2010.](https://reader030.fdocuments.in/reader030/viewer/2022032604/56649e695503460f94b66928/html5/thumbnails/2.jpg)
Statistics…..
- Association of Certified Fraud Examiners 2010 Report to the Nation:- Compiled from a Study of 1,843 cases of
occupational fraud between January 2008 and December 2009
- http://www.acfe.com/rttn/2010-rttn.asp
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2010 Report to the Nation
• Summary of Findings– Estimated 5% of annual revenue lost to fraud– The fraud lasted a median of 18 months before being detected– Occupational frauds are much more likely to be detected
by tip than by any other means– Median loss: $160,000! – Asset misappropriation schemes were most common form
with a median loss of $135,000– Nearly ¼ of frauds involved losses of at least $1 million
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Type of Organizations
• 2010 Report to the Nation– Private Companies 42.0%– Public Companies 32.1– Government 16.3– Not-For-Profit 9.6• Not-For-Profit Median Loss - $90,000
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2010 Report to the NationDetection by Not-For-Profits
• Tip 43.1%• Management Review 13.0• Internal Audit 10.7• Account Reconciliation 8.9• By Accident 6.5• Document Examination 6.5• External Audit 6.5• Notified by Police 1.8• Surveillance/Monitoring 1.2• Confession 1.2• IT Controls 0.6
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2010 Report to the Nation
• Control Weaknesses that Contributed to Fraud:– Lack of Internal Controls 37.8%– Override of Existing Internal Controls 19.2– Lack of Management Review 17.9– Poor Tone at the Top 8.4– Lack of Competent Personnel in
Oversight Roles 6.9
– Lack of Independent Audits/Checks 5.6– Lack of Employee Fraud Education 1.9– Lack of Clear Lines of Authority 1.8– Lack of Reporting Mechanism 0.6
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So What Can We Do?
C.O.S.O. (Committee of Sponsoring Organizations) created a Fraud Control Model
Fraud controls should PREVENT and DETER fraud as well as DETECT IT one it has occurred.
No one internal control system will FIT every business and circumstance!
![Page 8: Where’s the Money Going? 10 Things You Should Know about Internal Controls and Fraud Donna S. Brown, CPA Bob Powell, CPA November 12, 2010.](https://reader030.fdocuments.in/reader030/viewer/2022032604/56649e695503460f94b66928/html5/thumbnails/8.jpg)
1. Management Is KEY!
• Management Style – Does Management take undue business risk?– Does Management attempt to manipulate
performance measures?– Does Management pressure employees to achieve
results regardless of methods?
Tone At The Top!
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2. Develop a Great Board!
• Board’s are typically charged with Policy Setting - not day to day management
• Provide Orientation for new Board Members • Is your newest Member someone’s neighbor?• Ongoing training is needed – new programs,
policies, etc.• Limited terms prohibit complacency
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3. Create and Follow Employee Policies
• Hiring – Background checks– Reference checks– Interview process, and again!
• Firing– Remove from sensitive areas immediately– Terminate email, remote logins, etc.
• Training– Include security measures, fraud awareness and ethics
• Controlling – “the perception of detection”
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4. Implement Solid Internal Controls
• Proper authorization processes– Signoffs on all transactions and reviews– Who can do what!
• Segregation of duties– Four basic parts to any transaction• Authorizing the transaction• Recording the transaction• Receiving or sending the goods• Making or receiving payments
– The fewer people involved in the transaction, the greater the opportunity for fraud!
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4. Implement Solid Internal Controls(cont.)
• Adequate documentation of transactions– Need a paper/electronic trail with documentation of
everyone involved in the transaction– Should be complete
• Physical controls over Assets and Records– Maintain an asset listing of all physical assets– Separate recording and handling duties– Restrict access to physical assets– Inventory assets and reconcile discrepancies immediately
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5. Perform Risk Assessments
• Identify Possible Threats– How do you get paid – cash; direct deposit etc– How do you make payments – positive pay etc.
• Estimate Risk and Exposure– What is the likelihood of a loss and how much?
• Identify Controls– Prevention controls are better than detection
controls
• Perform cost/benefit analysis – is it worth it?
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6. Monitor Internal Controls
• Supervise employees– Training should include fraud controls– Monitor performance (increases or decreases in
performance may indicate a fraud risk)– Protect access to assets
• Accountability and Responsibility– Utilize budgets for maintaining cost controls– Analyze performance reports
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7. Don’t Overlook IT (information technology)
• Safeguard assets (information and equipment)• Set passwords appropriate for personnel –
restrict access• Inventory fixed assets (laptops, etc)• Monitor activities• Create plan for terminated employees
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8. Implement a Whistleblower Policy
• Recommended for nonprofits under Sarbanes-Oxley
• Protects employees from retaliation• Remember most frauds are uncovered from a
TIP!• See sample policy
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9. Don’t Ever, Ever, Ever Assume!
• My employee would never steal! – They are my best “friend”, “buddy”, “compadre”
etc. etc. Well of course they are!
• Understand their lifestyle – look for signs!• Don’t put them at risk – make sure they are
protected.
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10. Get Help!
• Other Charter Schools • Publications on fraud – online articles– AICPA, FICPA, Nonprofit Associations
• Associations • Your CPA
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Thanks!
• Contact info:
– Bob Powell – [email protected]• 850-386-6184 or 800-386-6184
– Donna Brown – [email protected]• 352-378-1331 or 888-805-2172
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