Small Organizations Need Internal Controls for Cash Receipts (Part 2)

By Joseph R. Dervaes, CFE, ACFE Fellow, CIA

Fraud's Finer Points 

Dottie was well respected by the staff and thoroughly enjoyed being the sole accounting clerk in charge of cash receipts in a relatively small water district. She was a trusted employee until the day she began to abuse her position, and ultimately misappropriated more than $357,237 in customer payments. The losses would have continued to grow except for one major event “ the external auditors detected the scheme during a routine annual audit. Dotty used an accounts receivable lapping scheme (more about that later) to manipulate cash receipt transactions in some 4,000 utility customer accounts. She couldn't even estimate how many years she had concealed her crime from managers, the auditors, and her family. No one at the district had monitored her work “ this critical function was unsupervised. But if just one independent volunteer had been checking her work, Dottie probably couldn't have pulled off the scheme.

Today's regulations require an entity's governing body or board of directors to install effective internal controls. To meet this obligation, small organizations should consider recruiting a responsible volunteer such as an accountant, bookkeeper, or a school teacher to monitor employees in key fiscal positions. The organization can find these volunteers by including notices with routing billing documents such as utility bills that reach all constituents and customers. The organization could also place an advertisement in the local newspaper or some other publication that reaches its clients.

However, there's no substitute for direct personal contact with friends and acquaintances of board members. Once you've identified volunteers, give them specific directions about their responsibilities. They must understand they're performing these tasks to protect the entity's assets and to ensure that it meets its financial expectations. And employers need to tell them how much time a task will take and if they can complete the work in the office or at home.

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