Anti-Fraud Measures to Avoid Corruption and Misappropriation
Every organization carries some level of risk inherent in its operations. Local governments are no exception, and they need to incorporate anti-fraud measures into their daily protocols to protect themselves—and the public's funds.
Misappropriation of funds, financial statement abuse and corruption can all affect government agencies, despite their best efforts. These incidents can have serious impact on local governments, causing real financial and reputational damage. Small government bodies are often even more susceptible to theft and fraud. Because they have smaller budgets, they may not be able to invest in the right kinds of internal controls or hire the right financial professionals to enforce those controls.
Identifying and mitigating the risks early is key to preventing internal fraud in local governments. Anti-fraud programs are worth the time and training to prevent future losses and complications.
Start your efforts by investing in a fraud prevention checkup. A licensed fraud examiner or a certified forensic accountant will come in and conduct interviews with management and key employees over the course of a few business days. These experts then prepare an overview of the organization's fraud prevention measures and provide recommendations.
Local governments could also hire external auditors to do a deeper and more detailed fraud risk assessment. During these kinds of assessments, the examiner or accountant have access to financial statements, documents and records, as well as their usual in-depth interviews with personnel.
Another option is using audit command language, or ACL, software. An increasingly popular fraud prevention method, ACL tools analyze data and look for discrepancies that could point to unusual or fraudulent activity.
Create an effective anti-fraud program
Once you've identified risks, you can move on to creating a comprehensive anti-fraud program. Preventing fraud begins with creating the right kind of culture and establishing policies that promote it. Here are some steps you can take to build an anti-fraud program that discourages misconduct and promotes the environment you want to see at your government agency.
Hire ethical employees
Hiring people of integrity is key to preventing fraud. For starters, local governments should perform criminal background and credit checks on potential employees. Train managers and HR employees to conduct thorough and careful interviews—a first impression can be just as important as a clean background check.
Get people involved
Including employees and managers in detecting and reporting fraud is one of the most effective ways of catching it. Encourage widespread monitoring, and make sure you have confidential reporting mechanisms in place that make it safe to report suspected fraud.
Develop and share fraud policies
Put together a policy that not only discusses what fraud means but gives concrete examples of actions that would be considered fraudulent. Then, clearly lay out the consequences in writing. Consequences may include termination, civil lawsuit and even criminal prosecution. Share this with your teams widely to create a culture of accountability across the agency.
Implement internal controls
Knowing where the guardrails are will help team members avoid running into them. Make sure there's adequate separation of duties, and only grant access to sensitive data and systems to the people who need it. Set up management reviews for any overrides of existing controls or exception logs, and monitor access to record keeping systems.
Conduct periodic reviews
Set up regular reviews of transaction records and monthly financial information, including vendor payments and payroll. Review your approved vendor list, and check addresses against those given to your employees. Go over the payroll and keep an eye out for any new or unknown employees.
Find the right products and partners
Most banks have fraud prevention tools that can help protect local governments' funds, including ACH monitoring, reporting and reconciliation solutions, and positive pay services. Talk to your financial institution about what they can do to partner with you in the effort to prevent fraud.
Protecting funds and preventing loss are high priorities for local governments. By putting key anti-fraud measures in place, local government decision-makers can prevent fraudulent behavior before it begins.
Financial insights for your business
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.