Let’s talk fraud and internal controls

Fraud. It does happen, but there are ways your organisation can work to prevent it from occurring. Having good internal controls – policies and procedures that ensure the integrity of accounting and financial information – can reduce the opportunities for fraud to be committed.

Here are some good internal controls that any organisation should have:

Reconcile your bank balance at least monthly
This may sound obvious, but it’s important that the bank balance in your accounting software is reconciled to the bank statement, and someone checks the reconciliation. This is one of the first controls that any organisation should implement. It’s important because it shows how much is in your bank account and by reviewing the transactions, you have a good chance of seeing if someone is taking money out of the bank account.

Reconcile your petty cash or your daily cash balance
Frequent overs or unders in your cash count could suggest that someone is mishandling or stealing the cash. For shops, fundraising and trading activities, daily cash counts are essential to accurately track cash balances and cash sales. Petty cash in offices should be reconciled monthly and make sure someone is reviewing the receipts – there have been cases where a staff member buys extra milk or a bag of coffee for themselves. For shops, we recommend a security camera system is installed, at least over the till. Obviously, cash should be locked away and kept safe.

Chase up overdue payments
If customers don’t pay their invoices on time, you must chase them up. Establish a clear policy requiring this action and identify who in the organisation is responsible for doing the chasing. Having segregation of duties in your sales and debtors’ system can prevent the manipulation of debtors and recording of fictitious sales.

Keep a track of your fixed assets
Do you know what assets your organisation owns, and do you know where they are?   A fixed asset register can easily be set up in a spreadsheet or in accounting software to keep track of each asset the organisation owns. This register should be reviewed at least yearly and kept up to date.

Establish policies and procedures for approving purchases
Clear policies and procedures over expenditure are important.

Key items to consider:

  • Who opens the mail, or who receives the invoices sent by email

  • Who reviews the invoices and how approval for payment is documented

  • Who enters these in the accounting system

  • Who writes the cheque or enters the banking details online

  • Who approves e-payments or signs the cheques and do these people review the invoices

  • Is there a hierarchy of purchase approvals – are there limits on who can approve each payment

  • Do you periodically check that suppliers’ bank account numbers are correct in online banking

  • Does someone other than the cardholder review the EFTPOS, debit card, credit card, travel card statements and receipts.

Follow these steps and you have a robust system to help prevent payment of unauthorised expenditure.

Keep your internet security up to date
Your organisation’s computers should be kept up to date with the latest operating system, firewall and antivirus protection. Hackers have been known to exploit weaknesses in organisations’ IT systems and have accessed internet banking sites.

If you have any questions, please get in touch.