Evaluating A Government

1
Evaluating A Governments Internal Controls and a
Review of How Fraud Relates to Internal Controls

• Presented By
• Paul E. Glick
• Glick Consulting Group
• Email pglick_at_mindspring.com

2
THE AGENDA

• Introduction and Overview
• What Are Internal Controls
• Managements Objectives and Responsibilities
• Who Is Responsible for Internal Controls?
• What Types of Public Sector Fraud Exists?

3
The Agenda

• Where is the Independent Auditor?
• Internal Control Environment
• Risk Assessment
• Control Activities
• Information and Communication (Step 4)
• Monitoring

4
The Agenda

• Evaluation Controls Over Accounting And Financial
  Reporting
• Other Internal Control Pitfalls

5
Seminar Objectives

• Review The Framework And Concepts Of Internal
  Controls
• Relate These Concepts To Financial Cycles
  (I.E., The Real World)
• Understand Who Might Be Ripping Us Off

6
Factors Affecting our Current Environment
7
Factors Affecting our Current Environment

• Global financial crisis
• Uncertainty in unexpected places (Municipal Bond
  Ratings)
• Increased regulation and oversight (Tax Reform,
  ARRA) leading to diminished control over revenues
• Smaller staff due to budget cuts

8
Factors Affecting our Current Environment

• Trends in the Audit Community
• SAS 115 (documentation of internal controls and
  communication with those in governance)
• Risk Assessments
• Fraud Risks
• Oversight at the Federal Level
• Transparency
• COSO

9
Factors Affecting our Current Environment

• Governments are being asked to do more with less
• Money and human resources

10
The Nature of Fraud Industry

• Fraud Can Be Explained By Three Key Factors
• A Supply Of Motivated Offenders
• The Availability Of Suitable Targets
• The Absence Of Capable Guardians Or A Control
  System To Mind The Store

11
The Nature of Fraud Industry

• The Opportunity To Commit Conceal Fraud Is The
  Only Element Over Which You Have Significant
  Control.
• What Are Some Of The Warning Signs?
• What Can We Do About It?

12
A Survey Of Folks Regarding Fraud

• 31 of All Americans are Dishonest
• Another 40 are Situationally Honest (i.e., they
  will be honest if it pays to be honest and
  dishonest if it pays to be dishonest)
• 200 Billion Employee Fraud Cost per Year
  Compared to 11 Billion from Violent Crime
• In Banks, 95 of Losses are from Employees and
  5 are Caused by Bank Robberies
• In Retail, 70 of Losses are from Employees and
  5 are Caused by Shoplifters and Customers

13
Fraud and Abuse in The U.S.

• U.S. Cost About 990 Billion A Year
• Government And Public Administration Have A
  Median Loss Of 93,000 Per Fraud Scheme
• Average Organization Loses 7 Of Revenue
• 12 Of Cases In A Study Were Frauds That Occurred
  In Government
• Street Crime Only Costs The U.S. 4 Billion
  Annually

14
The Facts

• Fraud Schemes Frequently Continue For Years
  Before They Are Detected
• The Typical Fraud In The Study Lasted 2 Years
  From The Time It Began Until It Was Discovered
• Frauds Are Much More Likely To Be Detected By A
  Tip Than By Audits, Controls Or Any Other Means
• Lack Of Adequate Internal Controls Was Most
  Commonly Cited As The Factor That Allowed Fraud
  To Occur
• Occupational Fraudsters Are Generally First-time
  Offenders

15
What Is Fraud?

• Its When Folks Are Ripping Off The Government In
  Lots Of Different Ways
• Fraud Is Like A Four Letter Word
• Just Ignore It And It Will Go Away
• It Will Never Happen To Us

16
Common Myths About Fraud

• Most Folks Will Not Commit Fraud
• Fraud Is Not Material
• Most Fraud Goes Undetected
• Fraud Is Well Concealed
• Prosecuting Will Deter Others

17
Potential Cost Of Fraud

• Lose The Confidence In The Government
• Loss To The Reputation Of Innocent Third
  Parties (I.E., The Remaining Staff)
• Cost To The Perpetrator
• The Public Loss

18
Potential Cost Of Fraud

• Diversion Of Public Resources From Intended
  Purpose
• Loss Of Money, Assets And Time
• Embarrassment, Guilt, Humiliation And Shame
• Subsequent Management Decisions Are Reviewed
  Under A Microscope
• Any Investigation Turns The Government Or Agency
  Inside Out

19
Personal Rip Offs For Glick

• Send Banking Information
• Bank of America
• Wachovia Bank
• TCF Bank
• HSBC Bank
• Catawba Valley Bank
• Regions Bank
• Bank of the West
• Washington Mutual
• Bank Financial
• Huntington Bank
• Smith Barney

20
Personal Rip Offs For Glick

• Frank Senger - 20.5 Million
• Chief Adeniran Aderogba - 10 Million
• Dr Sikas Usman - 30 of 45.8 Million
• Dr.Ahmed Kassim - 10.5 Million
• Miss Caroline Williams 30 Of 16.5 Million
• Mr Jack Chow No Amount
• Jim Mcconville - 20 Million British Pounds

21
Personal Rip Offs For Glick

• Richard H Mason 10 On All Payments Made
• Mr. Brendon Hopkins 30 Of 26.5 Million
  British Pounds (Twice)
• Mr. Mark Johnson Lottery - 2.5 Million British
  Pounds
• Mr.Carlos Moreno 50 Of 34.5 Million
• Miss Joyce Awuse - 5.5 Million
• Irs - 109.30
• Dr Dansuki Dan - 25.5 Million

22
Session 2

• What Are Internal Controls

23
What Are Internal Controls?

• To put it simply, internal controls are an
  exercise of common sense. You are practicing good
  internal controls when you?
• Balance your checkbook
• Keep your ATM/debit card pin number separate from
  your card
• Keep copies of your tax return
• Compare your monthly credit card statement to the
  credit card receipts
• Lock your car doors

24
What Are Internal Controls?

• Internal Control Is A Process, Affected By
  Management And Other Personnel, Designed To
  Provide Reasonable Assurance Regarding The
  Achievement Of Objectives In The Following
  Categories
• Effectiveness And Efficiency Of Operations
• Reliability Of Financial Reporting
• Compliance With Laws And Regulations

25
What Are Internal Controls?

• Internal Control Consists Of Five Interrelated
  Components That Affect Each Of The Three
  Categories

26
What Are Internal Controls?

• Internal control is a process. It is a means to
  an end, not an end itself.
• Internal control is effected by people.
• Its not merely policy manuals and forms, but
  people functioning at every level of the
  institution.

27
Limitations on Internal Controls

• Considerations Of Costs Will Prevent Management
  From Ever Installing A Perfect System
• Controls Are Potentially Subject To Management
  Override
• Risk Of Collusion

28
Applying the COSOFramework

• Committee of Sponsoring Organizations of the
  Treadway Commission
• www.coso.org

29
Who Are The Organizations

• American Accounting Association
• American Institute of Certified Public
  Accountants
• Financial Executives International
• Institute of Management Accountants
• The Institute of Internal Auditors

30
COSO Internal Control Integrated Framework

• Established A Common Definition Of Internal
  Control
• Provides A Standard Against Which A Government
  Can Assess Their Control Systems And Determine
  How To Make Improvements

31
Internal Control Components

• Control Environment
• Risk Assessment
• Control Activities
• Information and Communication
• Monitoring

32
Internal Control Components

• Internal Control Components Interact With
• Operations
• Financial Reporting
• Compliance

33
Evaluating Internal Controls

• Often, Evaluations Are Piecemeal Approaches To
  The Task
• Internal Controls Are Not Isolated And Are
  Related To One Another

34
Internal Controls Are Actually

• A Coordinated Set Of Policies And Procedures That
  Reflect A Comprehensive Strategy For Achieving
  Managements Objectives

35
Assessing The Internal Control Framework

• Provides A Favorable Control Environment.
• Continually Assesses Risk.
• Establishes And Maintains Effective Control-
  Related Policies And Procedures.
• Effectively Communicates Information.
• Monitors The Effectiveness Of Control Policies
  And Procedures And The Resolution Of Potential
  Problems Identified By Controls.

36
A Basic Rule

• More Is Not Better
• The Cost Of Excessive Or Redundant Controls Could
  Exceed The Benefits
• Employees May View Controls As Unnecessary Red
  Tape

37
Why Are Internal Controls So Important?

• Because The Prevention Of Fraud Is Critical And
  Costs Are High

38
Session 3

• MANAGEMENTS OBJECTIVES AND RESPONSIBILITIES

39
MANAGEMENTS RESPONSIBILITIES AND THE INTERNAL
CONTROL FRAMEWORK

• EFFECTIVENESS
• EFFICIENCY
• COMPLIANCE
• FINANCIAL REPORTING

40
EFFECTIVENESS

• DETERMINES WHETHER THE GOVERNMENT AND ITS
  DEPARTMENTS ARE MEETING THEIR OBJECTIVES
• GOALS AND OBJECTIVES IDENTIFIED IN BUDGETARY
  PROCESS
• FOCUSES ON RESULTS RATHER THAN EFFORTS
• INCLUDE OUTPUTS - HOW MUCH OF GOODS AND
  SERVICES ARE PROVIDED
• INCLUDE OUTCOMES - WHAT IS THE QUALITY OF GOODS
  OR SERVICES TO BE PROVIDED

41
EFFICIENCY

• MAKING OPTIMAL USE OF THE RESOURCES MADE
  AVAILABLE
• OBTAINING DESIRED RESULTS WITH THE LEAST
  EXPENDITURE OF RESOURCES
• MEASURES COSTS (I.E., EFFORT) TO RESULTS (I.E.,
  EFFECTIVENESS)

42
COMPLIANCE

• ANNUAL APPROPRIATED BUDGET
• GRANTOR REQUIREMENTS
• STATE OVERSIGHT REQUIREMENTS
• IRS REQUIREMENTS
• BOND COVENANTS
• LOCAL LAWS AND REGULATIONS

43
FINANCIAL REPORTING

• INTERNAL FINANCIAL REPORTING
• EXTERNAL FINANCIAL REPORTING
• - SPECIAL PURPOSE
• - GENERAL PURPOSE
• - CAFR

44
Session 4

• Who Is Responsible For Internal Controls?

45
Who is Responsible for Internal Controls?

• Everyone has a part in the internal control
  system.
• The roles vary depending upon what level of
  responsibility and the nature of involvement by
  the individual.

46
Who is Responsible for Internal Controls?

• Managers and supervisors are responsible for
  ensuring that internal controls are established
  and functioning to achieve the mission and
  objectives of their unit.
• Each employee within an area should be made aware
  of proper internal control procedures associated
  with their specific job function.

47
Is This Just A Problem For The Finance Office?

• Most Folks Think This Is Finances Problem
• But Not Really
• However, We Are Emphasizing the Finance
  Department In This Seminar

48
Managements Responsibilities And The Internal
Control Framework

• Any Entity, Be It A Government, A Business Or A
  Nonprofit Organization, Exists To Achieve Some
  Purpose
• It Is The Role Of Management To Provide The
  Leadership Needed For An Entity To Realize That
  Purpose

49
Managements Responsibilities And The Internal
Control Framework

• Furthermore, Management Is Not Free Simply To Act
  In Any Way It Might Choose To Achieve The
  Entity's Goals
• Management's Options And Actions Are
  Circumscribed By Constraints And Expectations,
  Both Implicit And Explicit.

50
Responsibility For Internal Controls

• Management Is Primarily Responsible For The
  Effectiveness Of Internal Controls, Like Any
  Other Aspects of Performance
• A Side Note - Authority And Responsibility Should
  Not Be Separated

51
Responsibility For Internal Controls

• Management Is Subject To Oversight By The
  Governments Elected Officials
• The Governing Body Is Ultimately Responsible
• Internal And External Auditors Can Assist
  Management

52
Responsibility For Internal Controls

• This Stuff Is Not Something Different From
• Your Basic Responsibilities As Leaders And As
  Fiduciaries

53
Basic Management Responsibilities

• Achieving The Governments Purpose
  (Effectiveness)
• Making Optional Use Of Scarce Resources
  (Efficiency)
• Observing Restrictions On The Use Of Resources
  (Compliance)
• Periodically Demonstrating Accountability For
  Stewardship Of Resources Place In The Care
  (Reporting)

54
Session 5

• What Types of Public Sector Fraud Exists

55
Profile of Fraud Perpetrator

• Male Or Female (White Males Over 60?)
• No Prior Criminal History (lt8)
• Well Liked By Co-workers
• Likes To Give Gifts/Compulsive Shopper
• Gambling Problems Not Unusual
• Long-term Employee
• Rationalizes Starts Small Or Borrows
• Lifestyle Clues

56
General Observations Of A Fraudster

• Male
• Intelligent (Bored With The Job Routine)
• Egotistical (Scornful Of Obvious Control Flaws)
• Inquisitive (E.G., Tempted By The Discovery Of
  A Computer Vulnerability)
• A Risk Taker
• A Rule Breaker
• A Hard Worker
• Under Stress
• Disgruntled At Work

57
The Fraud Triangle
Exacerbated in Economic Downturn

• Perceived Opportunity
• To Commit Fraud

• Perceived Pressure
• Facing Individual

Persons Rationalization Or Integrity
58
Conditions Present When Fraud Occurs

• Incentive/Pressure
• Opportunity
• Attitude and Rationalization

59
Causes Of Fraud

• Character And Personality
• Financial Stress
• -- Addiction
• -- Disaffection
• -- Pathologies
• Perceived Opportunity
• - Permits Fraud
• - Promotes Fraud

60
Why Folks Commit Fraud

• Grumpy Gus
• Stressed Sally
• Pill poppin Paula
• Never goes home Ned

61
Why Folks Commit Fraud

• Extravagant Ellen
• Over-spent Ollie
• Lotto Larry
• Compulsive Connie

62
Who Commits Fraud?

• Fraud Losses Caused By Managers And Executives
  Were 16 Times Greater Than Those Caused By
  Non-managerial Employees.
• Losses Caused By Men Were Four Times More Those
  Caused By Women.
• Those 60 And Older Were 28 Times Those Caused By
  Perpetrators 25 Or Younger.

63
Generally, What is the Goal of A Fraudster?

• Cash, Cash, Cash

64
Types Of Public Sector Fraud

• Receipts Fraud
• Disbursements Fraud
• Assets Fraud

65
Cash Schemes

• Stealing Cash Funds Processed Or On Hand
• Not Recording Stealing The Cash Receipts
• Under Ringing Stealing The Difference In Cash
  Receipts
• Altering Bank Deposits

66
Receipts Fraud

• Lapping Too Much Work!
• Kiting Bank Deposit Schemes
• Granting Bogus Credit Memos
• Forging Check Received

67
Receipts Fraud

• Duplicate Payments
• Charge Off Fraud Bogus Write-offs
• Disposal Fraud
• Credit Card Manipulation

68
Disbursements Fraud

• Personal Bills
• Bid Rigging
• False Claims (Fictitious Suppliers, Kickbacks)
• Conflict of Interest

69
Disbursements Fraud

• Travel Claim Fraud
• Procurement and Credit Cards

70
Payroll and Benefits Fraud

• Ghost Employees
• Unclaimed Payroll Checks
• Excess Payroll Payments (Falsifying Time Cards)
• Withholdings and W-2s
• Vacation and Sick Pay

71
Theft Of Assets Fraud

• Petty Cash Fraud
• Cash Register Theft
• Consumable Inventory Theft
• Capital Asset Theft
• Using Assets For Personal Use

72
Red Flags

• A Red Flag Is
• A Set Of Circumstances That Are Unusual In Nature
  Or Vary From The Normal Activity.
• A Signal That Something Is Out Of The Ordinary
  And May Need To Be Investigated Further.
• Not About Guilt Or Innocence But Merely Provides
  Possible Warning Signs Of Fraud.

73
Red Flags

• Do Not Ignore A Red Flagstudies Of Fraud Cases
  Consistently Show That Red Flags Were Present,
  But Were Either Not Recognized Or Were Recognized
  But Not Acted Upon By Anyone.
• Sometimes An Error Is Just An Errorred Flags
  Should Lead To Some Kind Of Appropriate Action,
  I.E. An Investigation By A Measured Responsible
  Person, But Sometimes An Error Is Just An Error
  And No Fraud Exists

74
Employee Red Flags

• Employee Lifestyle Changes
• High Employee Turnover
• Significant Personal Debt And Credit Problems
• Refusal To Take Vacation Or Sick Leave
• Behavioral Changes
• Lack Of Segregation Of Duties In A High-risk
  (Vulnerable) Area

75
Employee Red Flags

• Reluctance To Provide Information To Auditors
• Photocopied Or Missing Documents
• Weak Internal Control Environment
• Unexpected Overdrafts Or Declines In Cash
  Balances
• Decisions Dominated By An Individual Or Small
  Group

76
Employee Red Flags

• Excessive Number Of Year-end Transactions
• Management Displays Significant Disrespect For
  Regulatory Bodies
• Excessive Number Of Or Frequent Changes In
  Checking Accounts
• Accounting Personnel Are Lax Or Inexperienced

77
Employee Red Flags

• High Employee Turnover Rate
• Compensation Is Out Of Proportion
• Decentralization Without Adequate Monitoring
• Frequent Changes In External Auditors

78
Red Flags in Cash

• Excessive Number Of Voids
• Presence Of Personal Checks In Petty Cash
• Unauthorized Bank Accounts
• Excessive Or Unjustified Cash Transactions
• Large Number Of Account Write-offs
• Sudden Activity In A Dormant Account

79
Red Flags in Payroll

• Inconsistent Overtime Hours For A Cost Center /
  Department
• Overtime Charged During A Slack Period
• Overtime Charges For Employees Who Normally Would
  Not Have Overtime Wages
• Budget Variations For Payroll By Cost Center /
  Department
• Employees With Duplicate Social Security Numbers,
  Names, And Addresses
• Employees With Few Or No Payroll Deductions

80
Red Flags in Procurement

• Increasing Number Of Complaints About Services
• Vendors Without Physical Address
• Lack Of Physical Security Over Assets / Inventory
• Payments To Vendors Not Included On An Approved
  Vendor List
• Vendor Address Matching Employee Address

81
Red Flags in Procurement

• Purchases That Bypass Normal Procedures
• Charges Without Shipping Documents
• Vendor Payments Picked Up Rather Than Having It
  Mailed
• High Volume Of Purchases From New Vendors

82
Profiles of an Government At Risk

• Less Than 100 Employees.
• Management Ignores Irregularities.
• High Turnover With Low Morale.
• Staff Lacks Training

83
Session 6

• Where Is The Independent Auditor?

84
The Independent Auditor

• Once The Independent Auditor Is Finished With The
  Annual Audit, Can Everyone Relax And Assume That
  No One Got Us This Year?
• Of Discovered Fraud, the Independent Auditor Only
  Finds about 9

85
Why Do Auditors Fail To Detect Fraud?

• Lack of Training
• Accept any Reasonable Explanations
• Going Through the Process of Ticking and Tying
  Numbers
• They May Not Want to Find Fraud, It Causes
  Problems
• They May Be Embarrassed
• Not Enough Time Budgeted for the Audit

86
Types of Audits

• Financial Audits
• Performance Audits

87
The Independent Auditor

• The Auditor Reports On The Adequacy Of Existing
  Controls Within The Government
• The Auditor Must Carefully Evaluate The Internal
  Control System As A Basis To Determine The Degree
  Of Audit Procedures Necessary In The Circumstances

88
New Statements on Auditing Standards

• A Few Years Ago, The Rules For Auditors Were
  Changed And Expanded Substantially

89
What Created The Need?

• Corporate Fraud In The Roaring 90s Which
  Became Known In The Early 2000s
• Sarbanes Oxley Act Of 2002 (Private Sector)
• Required Additional Internal Controls By
  Management
• Created A New Agency (PCAOB) To Closely
  Scrutinize Public Company Audits
• Removed The AICPA From Any Authority For Public
  Company Audit Standards And Peer Review

90
A New Audit Approach

• A Risk Based Audit
• The Government Must Identify Key Internal
  Controls That Relate To High Risk Areas
• Some of the Areas Might Include
• Cash
• Investments
• Budget
• Revenue Receipts
• Expenditures
• Payroll
• Consumable Inventories
• Capital Assets
• Grants

91
Do the Auditors Look At Everything?

• Auditors Obtain Reasonable Assurance, Not
  Absolute Assurance
• Materiality
• The Single Audit
• The Auditor May Report on Compliance and Internal
  Controls
• Major Federal Awards

92
Internal Audit Function

• Management Can Improve The Quality Of The
  Environment By Establishing An Internal Audit
  Function
• Report Directly To Top Management (Or The
  Elected Officials?)
• Monitoring The Effectiveness Of Control Related
  Policies And Procedures

93
Internal Audit Function

• Internal Auditors Can Be Of Great Value To State
  And Local Governments In A Variety Of Ways.
• In Particular, They Commonly Assist Management In
  Monitoring The Design And Proper Functioning Of
  Internal Control Policies And Procedures.

94
Internal Audit Function

• In This Capacity, Internal Auditors Themselves
  Function As An Additional Level Of Control And So
  Help To Improve The Governments Overall Control
  Environment.
• Internal Auditors Also Can Play A Valuable Role
  Conducting Performance Audits, As Well As Special
  Investigations And Studies

95
Internal Audit Considerations

• Dont Let The Audit Function Become A Political
  Football
• Dont Promise The Moon
• Dont Let The Auditors Become Free Roaming
  Chickens.
• Dont Fly By The Seats Of Your Pants

96
Internal Audit Considerations

• Dont Use The Shotgun Approach To Scoping An
  Audit
• Never Leave A White Elephant In The Auditees
  Office.
• Dont Count Your Chickens Before They Hatch.
  Never Assume The Auditee Fixed The Problem.

97
GFOA Recommendations

• Every Government Should Consider The Feasibility
  Of Establishing A Formal Internal Audit Function
  Because Such A Function Can Play An Important
  Role In Helping Management To Maintain A
  Comprehensive Framework Of Internal Controls.
• As A Rule, A Formal Internal Audit Function Is
  Particularly Valuable For Those Activities
  Involving A High Degree Of Risk (E.G., Complex
  Accounting Systems, Contracts With Outside
  Parties, A Rapidly Changing Environment).

98
GFOA Recommendations

• If It Is Not Feasible To Establish A Separate
  Internal Audit Function, A Government Is
  Encouraged To Consider Either
• 1) Assigning Internal Audit Responsibilities To
  Its Regular Employees Or
• 2) Obtaining The Services Of An Accounting Firm
  (Other Than The Independent Auditor) For This
  Purpose

99
GFOA Recommendations

• The Internal Audit Function Should Be Established
  Formally By Charter, Enabling Resolution, Or
  Other Appropriate Legal Means
• It Is Recommended That Internal Auditors Of State
  And Local Governments Conduct Their Work In
  Accordance With The Professional Standards
  Relevant To Internal Auditing Contained In The
  U.S. General Accounting Offices Publication
  Government Auditing Standards, Including Those
  Applicable To The Independence Of Internal
  Auditors

100
GFOA Recommendations

• At A Minimum, The Head Of The Internal Audit
  Function Should Possess A College Degree And
  Appropriate Relevant Experience.
• It Also Is Highly Desirable That The Head Of The
  Internal Audit Function Hold Some Appropriate
  Form Of Professional Certification (E.G.,
  Certified Internal Auditor, Certified Public
  Accountant, Certified Information Systems
  Auditor) And
• All Reports Of Internal Auditors, As Well As The
  Annual Internal Audit Work Plan, Should Be Made
  Available To The Governments Audit Committee Or
  Its Equivalent.

101
Goals Of Audit Committee

• Ensure That Management Is Maintaining A
  Comprehensive Framework Of Internal Control
• Ensure That Managements Financial-reporting
  Practices Are Assessed Objectively
• Determine That The Financial Statements Are
  Properly Audited And That Any Problems Disclosed
  In The Course Of The Audit Are Satisfactorily
  Resolved

102
Key Benefits

• Practical Tool For Focusing Board Attention
• Direct Communications Link Between The
  Independent Auditors And The Governing Body
• Forum In Which The Independent Auditors Can
  Candidly Discuss Audit-related Matters With
  Members Of The Governing Board Apart From
  Management

103
Applicability to Small Governments

• Smaller Governments Have The Same Basic
  Responsibility As Larger Governments
• An Audit Committee Is Just As Necessary For Both

104
Level Of Expertise Needed OfMembers

• Sufficient Understanding To Perform Duties With
  Expert Assistance (I.E., Financial Expert)
• New Or Prospective Members Typically Should
  Receive Some Brief Formal Training
• Role Of The Audit Committee
• Their Personal Responsibility As Audit Committee
  Members
• Training Should Underscore Professional
  Skepticism In Dealing With Management

105
Relationship With Independent Auditors

• Auditors Report Directly To Audit Committee
• Provision To Meet Privately
• Amend Sunshine And Open Meetings Laws
  Accordingly

106
Relationship With Independent Auditors

• Two Views
• Traditional
• Internal Auditors/Management As Audit
  Committee/Governing Body
• Emerging
• Completely Independent Of Management
• Trade-off
• Management Involvement And Cooperation V.
  Independence

107
Basic Tasks

• Determining The Scope Of The Audit
• Determining The Scope Of Nonaudit Services
• Managing The Audit Procurement Process
• Selecting The Independent Auditors
• Reviewing The Financial Statements

108
Basic Tasks

• Reviewing The Auditors Report
• Reviewing The Comprehensive Framework Of Internal
  Control
• Assessing The Performance Of The Independent
  Auditors
• Providing An Independent Forum For Findings Of
  Fraud, Abuse, Or Control Override

109
Session 7

• The Internal Control Environment

110
The Control Environment

• Sets The Tone For The Government
• Influences Control Consciousness
• Foundation For All Other Control Components
• Includes Integrity, Ethical Values, Competency,
  Managements Philosophy, And The Way Authority
  And Responsibility Is Assigned

111
The Control Environment

• Corporate Culture (Enron) (A 60 Page Code of
  Ethics)
• Does Management Believe That Internal Controls
  Are Important To Achieving Its Goals And
  Objectives?
• Does Management View Internal Controls As An
  Obstacle To Achieving Its Goals And Objectives?

112
The Control Environment

• Who Knew Who They Were? There Was No Place For
  Me To Voice My Concerns, Either To The Internal
  Audit Function Or The Audit Committee. Remember,
  I Was Not In The Accounting Department. But Even
  If I Were, I Think I Would Have Known It Would
  Have Been Fruitless, Because I Would Have Had
  Access To Junior Auditors Who Were Simply Not In
  The Position To Raise The Flags That Would Have
  Hurt Their Senior Auditors And Account
  Executives.
• Sherron Watkins
• Enron Corporation

113
The Control Environment

• The Way We Do Things Around Here
• Sets The Tone Of The Government, Influencing The
  Control Consciousness Of Its Staff

114
Managements Attitude

• What Is The Tone At The Top?
• - Management
• - Elected Officials
• Will Management Allocate Resources To Internal
  Controls?
• Are There High Ethical And Professional
  Standards?
• Does Management Cut Corners?

115
The Typical Environment in Which Fraud Occurs

• Trust Is Placed In Employees
• Employees Have Detailed Knowledge Of The
  Accounting Systems And Their Weaknesses
• Management Domination Subverts Normal Internal
  Controls

116
The Typical Environment in which Fraud Occurs

• Management Adds Pressure To Make The Numbers
• Expected Moral Behavior Is Not Communicated To
  Employees
• Unduly Liberal Accounting Practices

117
The Typical Environment in which Fraud Occurs

• Ineffective Or Nonexistent Internal Auditing
  Staff.
• Lack Of Effective Internal Controls.
• Poor Accounting Records.
• Related Party Transactions.
• Incomplete And Out Of Date Procedural
  Documentation.
• Management Sets A Bad Example.

118
Practical Application - Control Environment

• Establish Current Policies With Regard To Ethical
  Behavior (Code Of Conduct), Conflict Of Interest,
  Nepotism
• Enforce Appropriate Discipline For Failure To
  Comply With These Policies
• Ensure Personal Adherence To Strong Moral Code
• Reward Competency

119
Practical Application - Control Environment

• Place High Degree Of Importance On Maintaining
  Strong Internal Control
• Provide For A Whistle Blower Policy That Allows
  Employees And Others To Report Fraud Or False
  Statements By The Management Team

120
Impact of the Control Environment

• Dont Underestimate The Importance Of This Part
  Of The Control System.
• All The Great Control Activities In The World
  Will Not Be Effective If Employees Know That
  Management Is Not Concerned With Strong Internal
  Control, Lacks Integrity Or Does Not Value Their
  Employees

121
Control Environment Pitfalls

• Ignoring The Tone That Management Sets Or
  Thinking That The Control Environment Is Not
  Important.
• Inconsistency In Treatment Of Lapses In Ethical
  Conduct.
• Allowing Employees To Feel Devalued.

122
Maintaining A Qualified Staff

• Competent And Honest Staff
• Up To Date Job Descriptions
• Follow Appropriate Hiring Policies (E.G., Not
  Hiring A Relative Or A Buddy)
• Assign Authority And Responsibility
• Ensure That Employees Are Trained
• Review And Document Performance
• Set Appropriate Performance Goals For Promotion

123
Session 8

• Risk Assessment

124
What Is Risk Monitoring And Assessment?

• The Governments Identification And Analysis Of
  Relevant Risks To Achieve It Objectives, Forming
  A Basis On How They Should Manage The Risks

125
Risk Assessment

• Risks Result From Both External And Internal
  Sources
• These Change Over Time Based On Economic,
  Regulatory, And Operating Conditions
• Risk Assessment Must Link Identified Policy
  Objectives To Specific Risk Factors

126
Risk Assessment

• Example A Policy Of Receiving The Highest Rate
  Of Return On Investments Must Be Linked To
  Interest Rate Risk
• Example A Policy Of Allowing Payment From
  Vendor Statements Rather Than Original Invoices
  Only Must Be Linked To The Risk Of Duplicate
  Payments

127
Risk Assessment

• Example A Policy Of Decentralized Cash Receipts
  Must Be Linked To The Risk Of Untimely Deposit
  And Recording To The General Ledger.

128
Risk Assessment

• Risk Assessment Must Also Link Identified Control
  Objectives To Specific Risk Factors
• All Transactions Are Properly Authorized
• Transactions Are Recorded In The Correct Period
  For The Correct Amount
• All Revenues Are Received And Recorded Timely
• Assets Are Not Stolen Or Lost

129
Risk Assessment

• Risk Factors Are Created By
• The Nature Of Particular Accounts Or Transactions
• Turnover In Key Employee Positions
• Changes In The Financial Markets
• The Expertise Of The Personnel Handling
  Transactions
• Ineffective Or Poorly Designed Control Activities

130
Practical Application - Risk Assessment

• Be Realistic About The True Risk With Regard To A
  Particular Account Or Cycle Of Transactions
• Consider All Types Of Applicable Risk Inherent,
  Control Risk, Fraud Risk, Credit Risk, Etc
• Make Sure To Address IT Risk
• Identify What Could Go Wrong?

131
Risk Detection

• It Is Like A Physician
• It Is Like An Attorney
• Prevention And Quick Corrective Action

132
Inherent Risk

• It Is Life!

133
Inherent Risk

• Complexity
• Cash Receipts
• Direct Third Party Beneficiaries
• Degree Of Centralization
• Prior Problems
• Prior Unresponsiveness To Identify Control
  Weaknesses

134
Effect Of Change On Risk Management

• Changes In The Environment
• Changes In Personnel
• Changes In Technology
• Rapid Growth
• New Programs And Services
• Changes In Structure

135
What Could Go Wrong?Example Cash Disbursements

• Payments Could Be Made To Fictitious Vendors
• Disbursements Could Be Made For The Wrong Amount
• Duplicate Payments Could Be Made On An Invoice
• Disbursements Could Be Recorded In The Wrong
  Period

136
What Could Go Wrong?Example Investments

• Excessive Transaction Fees Could Be Charged To
  The Government.
• Investments Held By The Government Could Be
  Stolen (Certificates Of Deposit).
• Investments Outside The Governments Risk
  Tolerance Could Be Purchased And Result In Loss
  Of Principal.

137
What Could Go Wrong?Example Cash Receipts

• Funds Received Could Be Credited To The Wrong
  Customer Account
• Cash Could Be Stolen By An Employee
• Amounts Received Could Be Recorded Net Rather
  Than Gross
• Amounts Receivable May Never Be Collected Due To
  Failure To Follow On Past Due Amounts

138
Risk Matrix Cash Receipts
139
Practical Application - Risk Assessments

• Risk Assessments Can Be Documented Via Narrative,
  Checklist Or Matrix
• Tools Available Include
• COSO Documents Available Via AICPA
• PPC Checklists Or Other Auditor Utilized
  Templates
• Local Government Websites (Perform Google Search
  For Government Internal Control)

140
Practical Application - Risk Assessments

• Remember That Use Of A Third Party Does Not
  Eliminate Managements Responsibility For
  Assessing Risks.
• Structure Of Agreement Is Important
• Obtain SAS 70
• Reconcile Reports To General Ledger (As
  Applicable)

141
Practical Application - Risk Assessments

• Remember That IT Controls Can Affect Risk For All
  Cycles Of Transactions. Well Designed Internal
  Controls Can Be Made Ineffective By Poor Controls
  Over IT.
• System Log-in Should Mirror Job Responsibilities
• Passwords
• Remove Temporary Access Granted Once No Longer
  Appropriate

142
Risk Assessment Pitfalls

• Trying To Identify A Control For Every Risk
  Factor.
• Ignoring The Possibility Of Existing Compensating
  Controls.
• Not Performing A Risk Assessment Annually Or At
  Least When Key Factors Have Changed (Regulatory,
  Employee Turnover, Etc.)
• Ignoring It Controls.

143
Session 9

• Control Activities

144
Control Activities

• The Policies And Procedures That Ensure
  Managements Directives Are Followed
• These Occur At All Levels Throughout The
  Organization
• Include Approvals, Authorizations,
  Verifications, Reconciliations, Security Of
  Assets, Segregation Of Duties And Review Of
  Operating Performance

145
Practical Application - Control Activities

• Address Control Objectives Existence Or
  Occurrence, Completeness, Valuation Or
  Allocation, Rights And Obligations, Accuracy Or
  Classification, Cutoff And Presentation And
  Disclosure
• Tie Control Activities To Risks Previously
  Identified And Address What Could Go Wrong
  Scenarios
• Balance Cost And Benefit

146
Practical Application - Control Activities

• Identify Control Objectives And The Risks Of What
  Could Happen
• For Each Risk Factor Identified, Evaluate The
  Potential Impact And Probability Of Occurrence
• Design Control Activities To Address High Impact,
  High Probability Concerns
• Evaluate Annually

147
Risk Matrix

• Cash Receipt Example

148
Risk Matrix

• Cash Disbursements Example

149
Practical Application - Control Activities

• It Is Not Necessary To Address Every Risk Factor
  With A Specific Control Activity Focus On Key
  Areas
• Utilize Compensating Controls Where Textbook
  Approach Is Not Practical
• Evaluate The Benefit Of Existing Monitoring
  Controls

150
Risk Matrix

• Cash Disbursements Example

151
Key Control Activities

• Address Unusual Transactions Or Variance From
  Expected Benchmarks In Timely Fashion
• Reconcile Accounts Per General Ledger To
  Subsidiary Ledgers Or Statements From
  Trustee/Custodian (As Applicable)
• Separate Initiation And Authorization From
  Recording Of Transactions

152
Key Control Activities

• Provide For Oversight By Interested Party Such As
  Investment Committee (Include Trustee Activities)
  , Audit Committee Or Citizens Group
• Utilize Disclosure Checklist To Ensure
  Presentation And Disclosure Requirements Are Met

153
Control Activities Pitfalls

• Remember That For Small Governments Key
  Objectives Must Be Identified
• Reducing The Risk Of Theft Or Fraud
• Providing For Accountability
• Ensuring Compliance With Regulations
• Focus On True Effectiveness Not Just Cookie
  Cutter Approaches
• Ensure Benefit Justifies The Cost

154
Session 10

• Information and Communications

155
Information and Communication

• Includes Both Internal And External Interaction
• Requires Pertinent Information To Be Identified,
  Captured And Communicated In A Form And Timeframe
  For Employees To Carry Out Their Responsibilities
• Reports Must Contain Relevant Operational,
  Financial And Compliance Information

156
Practical Application - Information and
Communication

• System Generated Reports Must Include Relevant
  Information
• Statements From Outside Third Parties
  (Broker/Dealers, Bank Statements, Grantor Agency)
  Must Be Channeled To Correct Personnel And
  Provided Timely

157
Information And CommunicationExample Investments

• Communication With Investment Committee Or Other
  Oversight Body Should Include
• Types Of Investments Held
• Average Rate Of Return For Period And YTD
  Compared With Benchmarks
• Average Maturity Of Portfolio
• Compliance With Investment Policy Provisions

158
Information and CommunicationExample
Investments

• Communication With Investment Committee Or Other
  Oversight Body Should Also Include
• Changes In Investment Strategy (If Any)
• Interest Rate Environment Changes
• Discussion Of Any Unusual Transaction Or
  Particularly Risky Investment

159
Information and CommunicationExample Cash
Disbursements

• Communication With Departments
• Budget To Actual Report By Budgeted Line
• Request To Explain Certain Variances
• Detail Of Capital Assets Added To Subledger
• Communication With Council
• Budget To Actual Comparison By Department
• Explanations For Variances Over A Certain
  Threshold

160
Information and CommunicationExample Cash
Receipts

• Daily Cash Reports Should Show Revenue By Major
  Categories Such That Reconciliation To The
  General Ledger Is Facilitated.
• The Date Of Receipt And Date Of Deposit Should Be
  Included Along With The General Ledger And Bank
  Account Information.

161
Information And Communication Pitfalls

• Generating Reports That Provide Inaccurate,
  Untimely Or Unnecessary Information
• Providing Inappropriate Information Outside The
  Organization (SS , Employee Evaluations)
• Failure To Verify Accuracy Of Externally Provided
  Reports

162
Session 11

• Monitoring

163
Monitoring

• Assessing The Quality Of The Internal Control
  System And Making Modifications As Needed
• This Process Is Ongoing Through The Normal Course
  Of Operations And At Separate Specific
  Evaluations Of A Particular Process

164
Monitoring

• COSO Framework States That Monitoring Ensures
  That Internal Control Continues To Operate
  Effectively.
• The COSO Framework Recognizes That Risks Change
  Over Time And That Management Needs To Determine
  Whether The Internal Control System Continues To
  Be Relevant And Able To Address New Risks.

165
Monitoring

• The Original COSO Report On Internal Controls Was
  Issued In 1992.
• In 2009, COSO Issued Guidance On Monitoring
  Internal Control Systems
• Emphasized Importance Of Monitoring Controls As
  Part Of Even Small Government Environments.

166
Monitoring

• Monitoring Is Both An On-going Process And Can Be
  Annual In Nature (Testing Of Key Controls)
• Process Can Be Done Annually By The Internal
  Audit Department (As Applicable) Or As An
  Internal Review By Finance Personnel.

167
Practical Application Examples of Monitoring

• Cash Receipts
• Performing A Review Of Bank Reconciliations On A
  Monthly Basis And Signing Off As Having Reviewed
  These.
• Monthly Comparison Of Actual Receipts To Budgeted
  Receipts And Investigation Of Significant
  Discrepancies.
• Annually Selecting A Few Transactions To Ensure
  Proper Recording.

168
Practical Application Examples Of Monitoring

• Cash Disbursements
• Performing A Review Of Bank Reconciliations On A
  Monthly Basis And Signing Off As Having Reviewed
  These.
• Monthly Comparison Of Cash Disbursements To
  Budgeted Expenditures/Expenses And Investigation
  Of Significant Discrepancies.

169
Practical Application Examples Of Monitoring

• Cash Disbursements
• Reconciliation Of P-card Purchases By Someone
  Other Than The Card Holder
• Annual Test Of A Selection Of Transactions For
  Proper Recording.

170
Practical Application Examples of Monitoring

• Investments
• Performing Investment Portfolio Review (Including
  Evaluation Of Concentration And Type Of
  Investments) Quarterly By Person Independent Of
  Investment Portfolio Management
• Disclosure Of Conflict Of Interest Statement
  Annually By Portfolio Manager
• Obtaining A SAS 70 Report From Custodian Annually

171
Practical Application - Monitoring

• Controls Will Change As The Makeup Of An Account
  Changes
• Controls Should Be Evaluated When There Are
  Changes In Key Personnel Or Software Applications
• Be Responsive To Information Requests Of Key
  Management Personnel
• Review Polices And Procedures Annually

172
Monitoring Pitfalls

• Failure To Perform Any Monitoring Control
  Activities.
• Overkill For The Organizations Size. One Or Two
  Key Data Cycles Or Areas Can Be Selected Each
  Year For Testing Of Controls.
• No Attempt To Actually Test Key Controls In Some
  Fashion.
• Failure To Evaluate Controls When Personnel Or
  Software Changes.

173
Session 12

• Evaluation Controls Over Accounting And Financial
  Reporting

174
Know Where To Start

• Identify Control Cycles
• Basic Control Cycles
• - Obtaining Resources
• - Applying Resources

175
Identify Control Cycles

• It Is Easy For Management To Be Daunted By The
  Sheer Volume And Complexity Of Controls Over
  Accounting And Financial Reporting.
• Accordingly, The First Step In Evaluating These
  Controls Is To Know Where To Start.
• The Best Place To Begin Is By "Breaking Down"
  What A Government Does Into Manageable Groupings
  Of Similar Or Related Activities, Commonly Known
  As "Control Cycles."

176
Obtaining Resources

• The Resources Inflows Control Cycle
• - Obtaining Legal Claim (Levy The Tax, Provide
  The Service)
• - Demanding Payment (From Taxpayers, Customers
  And Grantors)
• - Converting To Cash (Collect)

177
Applying Resources

• The Resources Outflows Control Cycle
• Applying Resources (Issue Purchase Orders,
  Approve Contracts, Hire Employees, Award Grants)

178
Applying Resources

• The Resources Outflows Control Cycle
• - Ensuring Conditions Met (Receipt Of Goods Or
  Services, Compliance With Grant Requirements)
• - Making Cash Payments

179
Applying Resources

• The Resources Outflows Control Cycle
• - Making Cash Payments

180
Interim Management

• Governments Are Not Able To Apply Immediately All
  Of The Resources They Obtain.
• Rather, There Will Be A Greater Or Lesser
  Interval Between When Resources Are First
  Obtained And When Those Resources Are Finally
  Converted Into Goods And Services
• During This Interval, A Government Must
  Carefully Manage The Resources Entrusted To Its
  Care.

181
Interim Management

• First, Liquid Resources (E.G., Cash) Must Be
  Properly Protected And Used To Best Advantage
  Until Needed (I.E., Invested Or Placed On
  Deposit).
• Second, Non Liquid Assets Used In The Provision
  Of Services (E.G., Equipment, Inventories Of
  Supplies) Must Be Properly Protected And
  Maintained.
• When Both Of These Processes Are Combined
  Together, The Result Is A Third Control Cycle For
  "Resource Management."

182
Seven Important Steps

• Vulnerability Assessment
• Documenting Transactions
• Identifying Specific Risks
• Identifying Compensating Controls

183
Seven Important Steps

• Evaluating The Design Of Comensating Controls
• Testing Compensating Controls
• Assessing The Results Of Testing

184
Session 13

• Control Cycles
• A Final Review

185
Cash Controls

• Collection Controls
• Disbursement Controls
• Custody Controls
• Accounting Controls
• Reconciliation Controls

186
Investments Controls

• Segregation of Duties
• Procedural Controls
• Custody Controls
• Accounting Controls

187
Capital Asset Controls

• Segregation of Duties
• Procedural Controls
• Authorization Controls
• Asset Accountability Controls
• General Ledger Controls

188
Inventory Controls

• Segregation of Duties
• Authorization Controls
• Receipt/Issues Controls
• Physical Inventory Controls

189
Procurement Controls

• Segregation of Duties
• Procedural Controls
• Requisition Controls
• Procurement Controls
• Receiving Controls
• Invoice Processing Controls

190
Personnel and Payroll Controls

• Segregation of Duties
• Procedural Controls
• Personnel Controls
• Payroll Processing Controls

191
IT Controls

• Segregation of Duties
• Procedural Controls
• Documentation Controls
• Data Controls
• Security Controls
• Inventory Controls

192
Session 14

• Other Internal Control Pitfalls

193
A Final Reminder About I/C Pitfalls

• Dont Focus On Areas Where Risk Is Low
• Dont Ignore Risk Factors You Become Aware Of
  Throughout The Year
• Talk To Your Auditors About Areas Of Concern They
  May Have And New Auditing Standards That Will
  Affect Your Audit.
• Make Sure To Tailor Any Borrowed PP To Your
  Organization.

194
A Final Reminder About I/C Pitfalls

• Remember That The Cost Of Implementing The
  Control Structure Should Not Outweigh The
  Benefit.
• Remember To Address Budget, Grant And It
  Controls.

195
Summary

• The Control Environment Establishes The
  Importance Of Internal Control.
• Risk Assessments Must Be Realistic And Performed
  When Changes To Objectives Or Policies Occur,
  There Is Turn Over In Key Employees Or
  Significant Changes In The Financial Markets.

196
Summary

• Control Activities Should Be Focused On Areas Of
  Highest Risk. Monitoring Controls Are Effective
  Stopgap For Smaller Entities.
• Information And Communication Must Provide
  Relevant Information For Managing The Assets And
  Liabilities Of The Entity.
• Monitoring Of The Internal Control System Is An
  Ongoing Process.

197
Session 15

• Red Flags and Fraud

198
How to Catch a Fraudster

• Independent Auditor
• Internal Audit
• Getting Ratted Out
• Oops Method

199
How to Catch a Fraudster

• Rotate those Job Duties
• The Spot Check
• And, the Surprise Attack

200
Eliminate Fraudster Potential

• Background Check
• Criminal
• Credit
• References
• Verify the Social

201
Eliminate Fraudster Potential

• Background Check
• Driving Record
• The Education
• Professional Credentials
• Drug Testing

202
Tips Employee Changes

• Attendance
• Tardiness
• Avoiding Others
• Bathroom Breaks

203
Tips Employee Changes

• Listen
• Look
• Smell
• Observe
• Ask

204
Top Ten ReasonsFraud Beats InternalControlsAnd
What Management Can Do About It?
205
Fighting the Last War

• Accountants Too Often Allow Themselves To Focus
  Almost Exclusively On Past Weaknesses Rather Than
  On Current And Future Exposures (Like Putting Up
  Traffic Signals Only After An Accident Occurs)

206
Establish A System Of Proactive FraudPolicies
Dont Wait For Something To PopUp!

• Use Of The Analytical Review
• Watch For Increasing Expenses, Increasing
  Receivables/Decreasing Cash, Increasing
  Revenue/Decreasing Cash
• Use Fraud Assessment Questions With Each Employee

207
Establish A System Of Proactive FraudPolicies
Dont Wait For Something To PopUp!

• Enforce A Mandatory Vacation Policy With A Senior
  Person Filling The Position For Several Days
• Enforce A Mandatory Job Rotation Policy
• Periodically, Stage A Surprise Audit Of Each
  Position

208
Detection of Fraud Schemes

• Tip (46.2)
• By Accident (20)
• Internal Audit (19.4)
• Internal Controls (23.3)
• External Audit (9.1)
• Notified by Police (3.2)

209
Control Related Policies

• Authorization
• Properly Designed Records
• Security Of Assets And Records
• Segregation Of Duties
• Periodic Reconciliations
• Periodic Verifications
• Analytical Review

210
1. Goin Through the Motions

• Process Mentality
• Just Doing The Steps In The Process
• Not Thinking About What One Is Doing
• Example Two Signatures Required On Checks. Both
  Check Signers Fail To Notice The Check Has No
  Payee And Still Sign The Check
• Remedy Reinforce The Need To Pay Attention And
  The Consequences For Failure

211
2. See No Evil, Hear No Evil

• Blind Trust
• Failure To Acknowledge Warning Signals
• Example Failure To Follow Up On A Customer
  Complaint Of An Incorrect Bill For Service And
  Relying On The Experienced And Valued Billing
  Clerks Response That It Was Just An Error.
• Remedy Realize That Anyone Can Commit Fraud.
  Assume Discrepancies Are Fraud And Prove To
  Yourself It Is Only An Error.

212
3. Its Good to be The King

• Positional Immunity
• Rationalizing That Controls Dont Apply To Me
  Because I Am In Upper Management.
• Often Referred To As Management Override.
• Example Executive Director Doesnt Report Leave
  Used, But Still Gets Paid For Unused Leave
  Annually.
• Remedy Identify Someone Within Or Outside The
  Entity That You Can Report These Circumstances To
  And Not Jeopardize Your Job.

213
4. New Kid on the Block

• Situational Incompetence
• New Employee Not In A Position To Question Why
• Example New Accounts Payable Clerk Questions Why
  Purchases From A Certain Vendor Do Not Require
  Bids, And Is Told That Such Purchases Are Exempt.
• Remedy If You Are The Supervisor, Dont Assume
  New Employee Just Doesnt Understand. Take Their
  Questions Seriously And Ask Your Self Why. If You
  Are The Employee, Ask More Than One Person.

214
5. Wheres All the Time Gone?

• Workload Overload
• Not Enough Time To Perform Control Procedures
• Example Knowing That The Supervisor Is Too Busy
  To Reconcile Accounts Receivable, A Billing Clerk
  Steals Cash And Posts Unauthorized Adjustments.
• Remedy Reevaluate Assignment Of Duties, And
  When Needed, Demand More Resources By Focusing On
  The Consequences Of Fraud.

215
6. Cant We All Be Happy?

• Conflict Avoidance
• Responsible Employees Not Comfortable In
  Confronting Other Employees
• Example A Supervisor Recognizes That The Cash
  Drawer Is Always Short At The End Of The Day, But
  Is Uncomfortable In Confronting The Employee.
• Remedy Reinforce Supervisory Responsibilities.
  Provide Employee Management Training. Dont
  Tolerate Poor Performance.

216
7. Wheres the Beef?

• Informational Restraint
• Responsible Employees Lack The Information They
  Need To Identify An Improper Transaction
• Example An Accounts Payable Clerk Is Not
  Provided A Contract That Includes A Not-to-exceed
  Price Limit And Vendor Takes Advantage By
  Over-billing.
• Remedy Reinforce With Employees The Openness And
  Availability Of Records And Information.

217
8. Its None of My Business

• Behavioral Ignorance
• Respo