Jake Winkler - The Journal Record
Apr 11, 2023
The risk of fraud has never been higher for governmental organizations. With the issuing of ARPA and CARES Act funding, governments have large amounts of excess cash that can’t be used on normal operational activities.
The risk of fraud has never been higher for governmental organizations. With the issuing of ARPA and CARES Act funding, governments have large amounts of excess cash that can’t be used on normal operational activities. Meanwhile, employees are seeing inflationary pricing in their normal expenses and rising interest rates, putting pressure on their monthly household expenses.
Fraud requires three components, which accountants refer to as the fraud triangle. Those components are opportunity, incentive and rationalization.
Fraudsters are becoming more creative in their approach, which makes fraud harder to detect and makes it more likely to continue for a longer term. The most common types of fraud that are being experienced by organizations are:
• Bribery and corruption: This type of fraud can involve offering or accepting money, gifts or other favors to influence decisions made by officials. To prevent bribery and corruption, governments should establish clear policies and guidelines that prohibit these activities and provide training to employees on how to recognize and report them. Additionally, a code of conduct should exist and be signed by all members of the council and any employee who works for the government.
• Embezzlement: Embezzlement is the act of stealing money or property that has been entrusted to an individual. It can occur in government entities when officials abuse their power and steal public funds for personal gain. Embezzlement can go unnoticed for years and can result in significant losses for the government. With the excess cash being provided from ARPA and CARES Act funding being more limited in usage toward capital purchases, a common issue is for individuals to use PCards to purchase capital items for their organization and then take those purchases home. Without a proper inventorying system, these frauds are very easy to perpetrate. To prevent these types of fraud, governments should establish strict controls over finances, including regular audits, segregation of duties and employee background checks.
• Cyber fraud: Cyber fraud is becoming increasingly common, as many operations are now conducted online. Cyber fraud can result in the loss of confidential information, damage to systems and the potential for identity theft. To prevent cyber fraud, government entities should establish strong cybersecurity policies and procedures, provide regular training to employees on how to recognize and prevent cyber-attacks and perform regular security audits and penetration tests on their information systems.
Fraud can occur in any organization, including government entities. To prevent fraud in your government, it is essential to establish clear policies and guidelines, perform regular audits, explore the use of internal auditors, and provide training to employees on how to recognize and prevent fraudulent activities. By taking these steps, governments can maintain the trust of their citizens and ensure that funds are being used ethically and responsibly.
Jake Winkler, CPA, is a partner at Arledge, the largest locally owned accounting firm in the Oklahoma City metropolitan area. Arledge is a recognized leader in the accounting industry offering practical solutions in the areas of tax planning, auditing, consulting, accounting advisory services and client accounting.