Thefts of Cash From Local Governments
Thefts 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 2019 through 2021. Becky Cook, 62, faces up to 10 years in federal prison after pleading guilty to federal tax evasion and theft.
Thefts of Cash from Local Governments
Usually, the causes of such cash thefts are (1) decentralized collection points and (2) a lack of accounting controls.
1. Decentralized Collection Points
First, consider that governments commonly have several collection points.
Examples include:
- Recreation department
- Police department
- Development authority
- Water and sewer department
- Airport authority
- Landfill
- Building and code enforcement
- Courts
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:
- Elected officials, such as tax commissioners, often determine how monies are collected without input from the final receiving government (e.g., county commissioners or school). Consequently, each elected official may decide to use a different receipting system.
- Customer convenience (e.g., recreation centers and senior citizen centers) may drive the receipting location decision.
- Other locations, such as landfills, are purposely placed on the outer boundary of the government’s geographic area.
What’s the result? Widely differing receipting systems. Since these numerous receipting locations have varying controls, the risk of theft is higher.
2. Lack of Accounting Controls
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 possible, provide the government’s administrative office (e.g., county commissioners’ finance department) with electronic viewing rights for the decentralized receipting locations (e.g., landfill).
- Require the transfer of money on a daily basis; the government’s administrative office (e.g., county commissioners’ finance department) should provide a receipt to each transferring location (e.g., landfill).
- Limit the number of bank accounts.
- Deposit funds daily.
- Periodically perform surprise audits of outlying receipting areas.
- Use a centralized receipting location (and eliminate the decentralized cash collection points).
- Persons creating deposit slips and handling cash should not key those receipts into the accounting system.
- The person reconciling the bank statements should not also handle cash collections.
- Don’t allow the person billing customers to handle cash collections.
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).
Final Thoughts About Fraud Prevention for Cash
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: The Little Book of Local Government Fraud Prevention. Additionally, here’s a post telling you how to audit cash.
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Chuck, I’m afraid this still happens. Funds and property derived from drug busts are a common area of theft in local police departments. Some jurisdictions do better than others. But when there is little accountability, you will have theft.
Good job, Kawsu. It’s people like you that lessen theft in our countries.
Hello Charles, I am from The Gambia and currently working at the Office of the Auditor-General. In 2020 when I audited revenue under court fines, I and my colleagues noted that the cashier created receipts in the system with no serial number on it and was issuing that to individuals and sometimes issue the original receipts created by the state.
The same person collecting revenue is the same person that receipted it in the system and did the reconciliation. we further do substantive procedures and noted that this person has stolen over $30,000.00. When he was questioned he confessed that he did it.
When I did my first Illinois small city audit I found that police and drug enforcement has cash expenses not auditable because it was to be spent specifically for purposes which should not be available to review. Normally that money came from fines and forfeitures absolutely no control but that was the way it was handled. That was 40+ years ago, is that still the case?
I agree Charles. I have seen this many times. Close the control weaknesses after the theft occurs–not good.
With small governments sometimes hard to get them to address this issue until after the theft has happened.