Five Fraud Prevention Tips for Government

August 21, 2018 | Article

You’re on the council, audit committee or the board for a government entity. Do you know what the position’s expectations and responsibilities are.

Sharing your time and talents isn’t all recognition and roses. There’s also a level of personal liability. Ignorance to fraud risks without action can include removal from the position and damage to a reputation. In some circumstances, there may be civil damages for negligence. Sometimes the nicest people who appear to live for the organization create unimaginable havoc, and you can’t turn a blind eye.

These positions typically include a duty of care regarding oversight for the government’s operations, understanding the fraud risk and establishing committees with responsibilities for managing fraud risk. These duties become even more all-encompassing if you find yourself on the audit committee. Then your responsibilities can include such roles as overseeing audit functions, monitoring internal controls, code of conduct compliance, investigating/initiating the investigation of allegations of fraud and monitoring adequacy of insurance protection.

Governments can be highly susceptible to fraud for many reasons. One example is that segregating duties with smaller governments is more difficult (if not impossible). There might not be enough people cross-trained to fill in and cover positions, in addition to completing regular review procedures. Another factor is that there can be a lot of cash—physical cash—coming through the door. Physical cash can be hard to secure even with strong internal controls.

If you find yourself on the council, audit committee or government board, what can you do to proactively prevent fraud and protect yourself? Here are five fraud prevention tips to consider:

  1. Tone at the top 
    Create an environment and culture emphasizing ethical behavior. The governing body is the check and balance of management. Having a questioning, skeptical view is essential.
  2. Internal controls and review procedures 
    Ensure internal control and processes are in place to mitigate fraud risk. Consider using data analytics and information to scour your departments for unusual trends and patterns on an ongoing basis.
  3. Policies and procedures
    Implement well documented, effective accounting processes and procedures as well as a fraud policy. The Association of Certified Fraud Examiners (ACFE) has a sample fraud policy.
  4. Employee dishonesty coverage
    Review insurance policies for employee dishonesty coverage and consider the cost benefit of increased premiums for protection if something were to happen.
  5. Anonymous third-party reporting systems
    The ACFE has found that 40 percent of frauds are uncovered by anonymous tips, showing the importance of having an avenue for employees to report concerns without fear of retribution.

Should you have any questions regarding fraud prevention, don’t hesitate to reach out to your Eide Bailly professional. We will be happy to discuss and determine what the best components of a fraud prevention program are for your organization, regardless of size.

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