Theft of cash from local governments is common.
How many times have you seen a local newspaper article like the following?
Johnson County’s longtime court clerk admitted today to stealing $120,000 of court funds from 2015 through 2016. Becky Cook, 62, faces up to 10 years in federal prison after pleading guilty to federal tax evasion and theft.
Usually, the causes of such cash thefts are (1) decentralized collection points and (2) a lack of accounting controls.
First, consider that governments commonly have several collection points.
Many governments have over a dozen receipting locations. With cash flowing in so many places, it’s no wonder that thefts of cash are common. Each cash receipt area may have different accounting procedures – some with physical receipt books, some with computerized receipting, and some with no receipting system at all.
A more centralized receipting system reduces the possibility of theft, but many governments may not be able to centralize the receipting function. Why? Here are three reasons:
What’s the result? Widely differing receipting systems. Since these numerous receipting locations have varying controls, the risk of theft is higher.
Second, consider that many governments lack sufficient accounting controls for cash.
It’s more likely cash will be stolen if cash collections are not receipted. If the transaction is recorded, then the receipt record must be altered, destroyed or hidden to cover up the theft. That’s why it’s critical to capture the transaction as early as possible. Doing so makes theft more difficult.
Additional steps that will enhance your cash controls include the following:
If segregation of duties is not possible (such as 7., 8. and 9. above), consider having a second person review the activity (either an employee of the government or maybe an outside consultant).
When possible, use an experienced fraud prevention specialist to review your cash collection procedures. Can’t afford to? Think again. The average incidence of governmental fraud results in a loss of approximately $100,000.
Finally, make sure your government has sufficient fidelity bonding. If all else fails, you can recover your losses through insurance.
For more fraud prevention guidance, check out my book on Amazon; click the book below. Also, see my free slide deck titled Finding and Preventing Fraud in Local Governments. Additionally, here’s a post concerning how to audit cash.
Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.
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