Author Archives: Brandon Williams

5 Questions to Foster Tone at the Top

An important component of a strong internal control environment is the idea of “Tone at the Top,” which refers to the ethical behavior and example of integrity that management and key employees set for the rest of the organization to follow. When tone at the top is lacking, the likelihood of fraud occurring is increased, because these individuals have a strong influence over internal controls and the internal control environment.  When assessing the example that management and key employees set, here are five questions to keep in mind:thumbs up people

  • Do one or two key employees appear to dominate the company?

If control is centered in the hands of one or two key employees, extra effort should be made to create internal controls that create checks and balances to avoid management override and ensure compliance with policies and procedures. It is important to remember that good controls protect the individuals as well as the organization when it comes to fraud.

  • Do any key employees have friends or relatives reporting directly to them?

Management should be above board in appearance and in fact. Even the appearance of nepotism could create mistrust within the organization. Organizations should prohibit key employees from having friends or relatives report directly to them.  Aside from the message it sends, also note that opportunities for collusion increase the risk of fraud and increase the difficulty of finding such fraud.

  • Do any key employees have outside business interests that might conflict with their duties at the company?

Key employees should be required to provide annual financial disclosures that list outside business interests.  Interests that conflict with the organization’s interests should be prohibited. Management and key employees should place the mission above personal interests in both appearance and in fact in order to set good tone at the top.

  • Have any key employees failed to take vacation?

While being so dedicated to work that one forgoes vacation may look good, it can actually be a serious red flag. Requiring key employees to take annual vacations can aid an employer in detecting an ongoing fraud scheme because schemes tend to fall apart and become obvious when the perpetrator is removed from the scene.

  • Are any key employees experiencing financial pressures, such as debts, gambling, medical bills, or divorce?

It’s a touchy subject, but key employees who are experiencing financial pressures represent a potential fraud risk to the organization and should be monitored by management.  Employee assistance programs can be made available to help employees with alcohol, drug, and other problems with compassion and help alleviate some of the pressure these issues create.

For more information on business topics affecting nonprofit organizations, contact Aronson’s Nonprofit & Association Industry Services Group or Brandon Williams at 301.231.6200.

5 Questions to Help Foster A Strong Internal Control Environment

Employees are one of an organization’s most important assets and it is important to maintain an environment of ethical behavior among employees in order to mitigate fraud.  But how do you create and communicate the importance of ethical behavior? When thinking about mitigating potential fraud and fostering an environment of strong ethics, here are five important questions about your internal control environment to keep in mind:

  • Are employees provided formal written job descriptions?checklist

In addition to clarifying what employees are responsible for, job descriptions signify what employees are not responsible for.  Employees who perform duties outside of their job descriptions represent a significant red flag.  In addition, a lack of clear organizational responsibilities can lead to confusion and frustration for employees.  Organizational charts and job descriptions can be used to clarify organizational responsibilities and help accountability. Accountability will also help set the tone at the top and set the example for employees to follow.

  • Are employees afraid to deliver bad news to supervisors or management?

Management should promote a culture in which employees aren’t afraid to deliver bad news.  After all, the sooner management receives the bad news, the sooner it can respond.  Fear of communication can be dangerous. Organizations should foster an environment of open communication without fear of retribution.

  • Do employees feel they are treated and compensated fairly?

Management should establish appropriate lines of communication with employees (such as surveys, exit interviews, and open-door policies) to assess their attitudes toward the organization.  One of the sides of the fraud triangle is rationalization. You don’t want employees to have a sense of “this company owes me/ doesn’t appreciate me” because that heightens the risk of fraud.

  • Are employees required to take annual vacations?

Requiring employees to take annual vacations can aid an employer in detecting an ongoing fraud scheme because generally the scheme falls apart without the fraudster’s constant manipulation. The employer is more likely to discover a perpetrator running such a scheme when the perpetrator is removed from the scene.

  • Is there a formal policy covering approval authority for financial transactions, such as purchasing or travel?

In order to safeguard assets and financial reporting, companies should develop and implement policies for determining how financial transactions are initiated, authorized, recorded, and reviewed. Consider proper segregation of duties and appropriate levels of authorization. An employee manual and financial policy manuals help to communicate expectations and the importance of following the controls set in place.

For more information on business matters affecting nonprofit organizations, contact Aronson’s Nonprofit & Association Industry Services Group or Brandon Williams at 301.231.6200.

 

Questions to “Check” Yourself about Check Tampering

Zemanta Related Posts ThumbnailThere are many different fraud tampering schemes.  One area that is easy to tamper with is checks.  When considering your organization’s vulnerability to fraud, here are a few questions to keep in mind to help mitigate the risk from tampering of checks.

  • Are unused checks stored in a secure container with limited access?

Blank checks, which can be used for forgery, should be stored in a secure area such as a safe or vault.  Security to this area should be restricted to authorized personnel.  Keep in mind, a locked cabinet is no good if the key is easily accessible!  In addition, it is important that people who have access to blank check stock do not have signing authority. Safekeeping and authorizing should be kept separate.

  • Are bank reconciliations completed immediately after bank statements are received?

Companies should complete bank reconciliations immediately after bank statements are received.  The Uniform Commercial Code states that discrepancies must be presented to the bank within 30 days of receipt of the bank statement in order to hold the bank liable. Also, it will be easier to spot a discrepancy while the information of recent events is still fresh in your mind and it’s always better to catch a fraud scheme sooner rather than later.

  • Are two signatures required for check issuance?

Requiring multiple people to review and sign checks reduces the risk of check fraud. Generally, a threshold is recommended whereby larger checks require more people involved. The amount of the threshold depends on the risk level you have assessed for your organization. $2,500 may not be practical if you habitually write large checks but to a smaller organization, that may be the level where things get risky and a separate set of eyes acts as a good control.

  • Are hand written checks prohibited?

Handwritten checks are especially vulnerable to check fraud and should be prohibited. The problem here is that they can be written without entering anything into the accounting system which means an extra close eye needs to be paid to that bank reconciliation!

  • With the exception of payroll, are checks issued to employees reviewed for irregularities?

Checks payable to employees, with the exception of regular payroll checks, should be closely scrutinized for schemes such as conflicts of interest, fictitious vendors, or duplicate expense reimbursements. Nobody likes chasing people down for their expense receipts, so make it a standard part of the control environment that submitting receipts before reimbursement is expected of everyone.

For more information on business matters affecting nonprofit organizations, contact Aronson’s Nonprofit & Association Industry Services Group or Brandon Williams at 301.231.6200.

 

View Archives

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 12 other subscribers

Latest Webinar Videos