The Fraud Examiner

Internal Controls: Putting Them in Place Is Only Half the Battle
 

March 2012 

By Peter Goldmann, CFE 

 

According to Connecticut-based forensic accountant and investigator Stephen Pedneault, CFE, CPA, many internal control designers and fraud experts over-think potential fraud scenarios during their risk assessments.


In reality, as Pedneault aptly points out, many fraud schemes are not overly complex. He recently told me that more than half of employee thefts and embezzlements he has investigated used very simple schemes that could have been easily prevented or detected with basic, time-tested internal controls.


For example, says Pedneault, a bookkeeper at a church was responsible for collecting, counting, recording and depositing funds for programs run by the church outside of its main offertory program. A separate bank account was established for these programs, and a deposit was supposed to be made each business day. The bookkeeper made these deposits until Dec. 3, the last deposit date identified on the bank statements.


The programs continued through the following June, and the church collected funds as usual. However, despite the lack of deposits on monthly bank statements starting in December, the scheme went undetected until July.

 

And here’s where Pedneault’s point rings loud and clear:  Had the church simply the human and technical resources in place to monitor bank deposits and bank statements on a regular basis the fraud would have been detected in January or February – not July.

 

The internal controls that Pedneault identified for the church theft are just like countless other operations-level controls that management should have in place to mitigate the risk of fraud. Some others that are probably familiar to you include:

 

Paying no invoices without a corresponding purchase order

Putting positive pay into place for all disbursement accounts

Segregating employee duties in financial positions to avoid providing the authority to commit embezzlement or other crimes.

Enforcing stringent policies for spending during business trips



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