PART 2 of the Series

11. STATUS QUO. In one city a quarterly sale of surplus items and lost and found items.  The person in charge of the operation was loading five bicycles into his car. When asked what he was doing, his reply was that it was the custom that anyone who works on the quarterly sale was entitled to take his/her choice of the best items.   So the person received overtime for working on Saturday, plus free bikes.  If this behavior is condoned, then where is the line of ethics?

12. ACCOUNTABILITY PROCEDURES MUST BE IN PLACE.  Accountability procedures are a good first step in discouraging mischief.  For example, when books of parking tickets are given to an officer, the officer must be accountable for every ticket in their book, and there must be an independent procedure to keep track of the tickets issued, voided, or in the collections process.  Found in one police department were thousands of dollars in cash and personal checks stapled to parking tickets — years worth of stapled monies!  One does not need to be a rocket scientist to figure out what was happening, but, it was confusing to see the money and seven year old checks uncashed.

13. FORMATTED CHANGE ORDERS. In those governments where purchase orders are utilized, it is not uncommon that if there is a $1,000 limit afterwhich bidding is required, sometimes people get a $999 purchase order and have five $999 change orders.  With one government, a formatted change order form was instituted wherein for the ten most common reasons for a change order, formatted boxes could be checked.  Prior to this innovation, many people had scribbled unintelligibly the phony reasons for a change order. Subsequent to this innovation, change orders were reduced by 70%.

14. INDEPENDENT CONFIRMATION OF REVENUE AND EXPENDITURES.  There must be an independent confirmation of revenues and expenditures.  In one case the fiscal officer had been choosing the auditor each year. Since the fiscal officer was absconding with funds, it was curious how all of the other responsible auditors could never get to win the audit contract.  Sometimes, it may be of value to consider an auditor of the auditor.  It is always of value to look at the bank statements to verify that the money listed in the reports balances with the money the bank seems to have in their accounts.
 

15. REASONABLE EXPLANATIONS OF FAILURE TO MEET BUDGETED FINANCIAL OBJECTIVES [i.e. revenues or expenditures].  It should be a red flag if an individual refuses to give a reasonable — and written — explanation as to why revenue is either reduced or expenditures are increased.  There should be routine analysis of revenue and expenditure projections with corresponding longitudinal statistical analysis of the past five years.  It is especially valuable to have comparative line or column charts.  Graphics permit quick and visual identification of significant aberrations.  Look out if someone has hostile responses for requested information. It may be the person is just overworked or annoyed.  However, it may also be that the person is covering up something.  One fiscal officer refused to provide five years of historical data processing purchases.  He tried every trick for procrastination that was possible.  He even alleged that the consultant and the CPA were not sufficiently intelligent to understand his sophisticated financials.  Fortunately, through surreptitious means, the records were uncovered, and the reasons for his behavior were plan to understand.  He was a crook!

16. MAINTAIN RECORDS. If financial records management activities are being undertaken, it is important not to destroy possible evidence for a possible trial of money mismanagement.

17. INSIST ON TIMELY WRITTEN FINANCIAL REPORTS. It is imperative that management require timely and written financial reports, prepared by internal staff and/or external auditors.  When individuals in an organization insist on verbal reports, a red flag should be raised.  The timely factor is an interesting one. One city had a clerk that routinely had provided for detailed financial reports on the third day of the month, each month. Then, it was submitted on the ninth day of the month, and then on the twentieth of the month.  Over time the reports were not being submitted monthly, but only nine months a year.  The missing three months went into the clerk’s private accounts!  There must be written reports and they must reconcile with monthly bank statements. If the money is not in the bank, then there is good reason to believe that it is missing!
 

18. MAKE SURE THAT REVENUES ARE CAPTURED WHEN PAID.  All revenue entry, whether it be tax bill collection, receipting of licenses and fees, collection of utility payments and the like must be entered systematically into point of sale [POS] capture workstations utilized at the instant a taxpayer or customer pays money to any government employee.  Petty cash should also be subject to cash controls that require daily reconciliation.  Such workstations have the virtue of tracking every transaction, identifying the cashier and balancing the cash drawer, and check validation and receipting. This makes reconciliation of cash receipts an efficient process while protecting government from theft.  The use of lock-box receipting prevents easy thievery by using receipting controls by agents such as banks, and controlling journal entry via ACH processing.  In one municipality, the use of a video camera pointed at the cash stations significantly discouraged attempts to embezzle money during transactions.

19. VIRTUALLY ALL EXPENSE PAYMENTS SHOULD BE PROCESSED THROUGH COMPUTER CHECKS OR PROCESSED ELECTRONICALLY. Multiple checking accounts that are not accounted for regularly in the general ledger are a potential source of significant embezzlement.  Modern computer-based accounting systems allow convenient printing of even single checks to a laser printer.  With the exception of specific funds that require a separate cash account (such as an electric utility enterprise fund), as much as possible should be passed through a central cash account using due-to or due-from functionality to post transfer transactions from multiple funds. Funds-transfers can easily be accomplished through ACH processing and electronic transfer so that expense checking accounts such as payroll and accounts payable can be kept at zero balances until expenditures are approved and ready for payment.

20. CONTROL YOUR PASSWORDS.  Technology provides for electronic signature without the use of a signature cartridge.  The use of a secured PIN number to authorize check signing is a very weak link if someone discovers the signatories PIN number.  This also impacts electronic approval of requisitions and purchase orders.  A stolen PIN number can result in collusion between vendors and the corrupt employee.  Thus, there should be vigilance by department heads, comptrollers, and managers that checks, purchase orders, and refunds are being released to properly authorized parties.�
 

COMING SOON: Part 3 #21-25 and conclusion