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Cash Receipting: Internal Control Risks and Rewards WSACA 2019 Licensing Conference

The Center for Government Innovation. Cash Receipting: Internal Control Risks and Rewards WSACA 2019 Licensing Conference September 12, 2019. “There is no kind of dishonesty into which otherwise good people more easily and frequently fall than that of defrauding government of its revenues...”

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Cash Receipting: Internal Control Risks and Rewards WSACA 2019 Licensing Conference

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  1. The Center for Government Innovation Cash Receipting: Internal Control Risks and Rewards WSACA 2019 Licensing Conference September 12, 2019

  2. “There is no kind of dishonesty into which otherwise good people more easily and frequently fall than that of defrauding government of its revenues...” Benjamin Franklin

  3. What will you learn today? Importance of internal controls Internal control basics Designing cash handling internal controls Best practice tips What to do if fraud happens to you

  4. Importance of internal controls

  5. INTERNAL CONTROL WEAKNESSES were responsible for nearly HALF of frauds

  6. Anti-fraud controls are associated with: Quicker detection MORE THAN 50% REDUUCTION • Reduced losses

  7. Fraud detection LESS THAN 5% 40 percent Employees: 53 percent Customers: 21 percent Smaller organizations usually rely on external audits

  8. 122 investigations in 2018 $416,880 misappropriated $747,595 in questionable transactions

  9. Common control weaknesses/warning signs Trusted employee with limited oversight No segregation of duties Inadequate monitoring and review Lack of supporting records Deposit patterns that vary from normal High volume of voids/adjustments High volume of system deletions/modification Deposits not made daily or intact

  10. It could happen to you! It could happen to you! • Fraudster holds deposits and uses cash for their personal needs and deposits the funds later Borrowing Scheme • Deposits that are not timely • Deposits that are not intact • Not following normal procedures • Lack of segregation of duties • Inadequate oversight and monitoring • Inadequate deposit review

  11. Internal control basics

  12. Who is responsible for internal controls? Management is in the best position to establish and maintain internal controls and is held primarily accountable for their proper functioning.

  13. Internal controls: The big picture

  14. Internal controls: The big picture WHY WHEN WHAT WHO WHERE

  15. Internal controls: The big picture • Clearly define the cash-handling process and develop expectations • Develop forms and reports to validate and support transactions • Observe and monitor activities • Review documents

  16. Effective internal controls enable you to: • Identify a loss promptly • Determine the entire amount lost • Identify responsibility for the loss • Protect employees • Safeguard resources • Help prevent fraud

  17. Designing cash handling internal controls

  18. Which type of control will work best? System Process segments Detective Corrective Locations Preventive

  19. Internal controls: The big picture • Clearly define the cash-handling process and develop expectations • Develop forms and reports to validate and support transactions • Observe and monitor activities • Review documents

  20. Preventative Controls • Written policies and procedures • Required training • Reasonable safeguards • Require proper recording • Require prompt/intact deposits

  21. Safeguard and limitaccess to receipts

  22. Segregate duties in the cash handling function

  23. Segregate duties related to mail receipts

  24. It could happen to you! • Fraudster takes cash receipts prior to being recorded Skimming Scheme • Unexpected non-standard activity • Deposits don’t meet composition expectations • Inadequate oversight and monitoring • Inadequate deposit review • Inadequate system report review

  25. Detective Controls • Understanding typical revenue patterns • Standard forms • System report reviews • Internal audits

  26. Revenue pattern expectations

  27. Deposit composition expectations

  28. Standardized forms and reports

  29. Monitor/review non-standard transactions

  30. Understand computer operations and review reports

  31. It could happen to you! • Fraudster processes an unsupported void, reversal or refund Reversing Transaction Scheme • Unexpected non-standard activity • Subagent agreement not followed • Lack of training • Inadequate review of bank activity • Inadequate oversight and monitoring • Inadequate system report review

  32. Corrective Controls • Enforce established policies and procedures • Standardized error reporting procedures • Communicate expectations • Take appropriate personnel actions

  33. Common control weaknesses/warning signs Trusted employee with limited oversight No segregation of duties Inadequate monitoring and review Lack of supporting records Deposit patterns that vary from normal High volume of voids/adjustments High volume of system deletions/modification Deposits not made daily or intact

  34. Internal controls: Be your own auditor PROCESS REVIEW OBSERVE REPORTS FORMS POLICIES SUPPORT TRAINING MONITOR EXPECTATIONS

  35. It could happen to you! • Fraudster changes the transaction type or adjusts a customer’s account so the amount owed is reduced Write-Off Scheme • Unexpected non-standard activity • County policy not followed • Inadequate oversight and monitoring • System notes not documented/valid • Inadequate system report review

  36. Cash handling controls ?

  37. Best practice tips

  38. NOT a best practice

  39. Best practice tips Watch for behavioral red flags

  40. Best practice tips Require employees to take time off

  41. Best practice tips Have employees certify they read policies, understand them and were provided training

  42. Best practice tips Be aware of known computer system vulnerabilities

  43. Best practice tips System reports are generated by the person performing the review and monitoring

  44. Best practice tips Spot check transaction postings for accuracy

  45. Best practice tips Occasionally prepare a bank deposit or bank reconciliation

  46. It could happen to you! • Fraudster diverts a payment from one customer and hides the fraud by applying another customer’s payment to the account Lapping Scheme • Deposits that are not timely • Deposits that are not intact • Missing deposit support • Not following normal procedures • Lack of segregation of duties • Inadequate oversight and monitoring • Bank-validated deposit slips not required

  47. What to do if fraud happens to you

  48. Fraud happens

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