Fraud in Government Accounting: How Simple Controls can Help Detect and Prevent Fraud

The Latest Rules and Regulations That Impact Your Government Entity

It is important to remain informed about the most common fraud practices and the best way to detect and prevent them.  To begin, let us first look at who is committing fraud.  Fraud is typically the result of someone who has a perceived pressure, opportunity or rationalization to commit the fraud, meaning it can be anyone from the CEO to the staff.  However, employees are statistically the most likely to commit fraud and higher management are the least likely. On the flip side, higher management have the means to commit high dollar fraud while employees have a much less significant impact to the organization as a whole.  Another surprising statistic is that 87% of all fraud cases in 2012 were committed by people that have no criminal background (2012 ACFE), making it even more difficult to detect.

Some of the most common signs of fraud include living beyond one’s means, unusually close attention to a vendor/customer, and an unwillingness to share duties with others.  Many organizations solely rely on external auditors to detect fraud; however, an audit is not designed to detect fraud, but to ensure that the financial statements are presented fairly. Sure, external auditors do happen to find fraud every now and again, but the most common way fraud is found is through a tip from within the organization. Over 43% of fraud cases in 2012 were discovered by a tip through the use of an organization’s whistle blower policy or anonymous hotline (2012 ACFE).  Other effective controls include requiring employees to take vacations and have someone else perform their job, have two individuals review the bank statements each month, have a good segregation of duties, among many others.

To learn more about detecting and preventing fraud, click on the link below to view the 2012 Report to the Nations, provided by the Association of Certified Fraud Examiners, for an excellent source of information.

Andrew Gill