Wednesday: What Can I Do to Prevent Fraud?
State agencies vary widely in terms of their mission, operational goals, personnel size, and budgets. Therefore, each will face unique risks within processes and programs. Although this is the case, agencies must take a proactive approach and minimize fraud opportunities, whether it is in existing or brand-new program areas Today we cover:
- How to prevent potential fraud.
- How internal control weaknesses contribute to occupational fraud.
- Repercussions of fraud, waste, and abuse of state funds.
- What internal controls are most common.
Fraud Opportunity and Fraud Repercussions
Agencies can limit the opportunity for fraud by designing and implementing specific controls. Here are common vulnerabilities that contribute to fraud opportunity:
- Lack of internal controls
- Override of existing controls
- Lack of management review
- Poor tone at the top
- Lack of competent personnel in oversight roles
- Lack of independent checks/audits
When fraud occurs in state government, taxpayers, state agency employees, and state agencies are impacted in many ways. Repercussions can include:
- Loss of public funds and resources
- Negative news and reputational harm for the agency and fraudster
- Redeploying resources for fraud investigations
- Increased cost of government services, fees and taxes, and sanctions
- Less money for government operations and technology
- Significant expenses for prosecution and incarceration of convicted fraudsters
- Reduced confidence in public officials and/or public agencies
- Difficulty meeting agency goals
- Impact to staff development, retention, and recruiting
- Lowered employee morale
This table shows typical controls used to help prevent fraud and common internal controls to consider or that are already in place within state processes.
Table 1: Common internal controls, both anti-fraud and general.
Common Anti-Fraud Controls
Common General Internal Controls
External Audit of financial statements
Separation of duties for transaction recording, approval, reconciliation, and custody of a process.
Code of conduct
Periodic rotation of tasks and job responsibilities, cross-train staff, promote knowledge retention in specific areas
Internal audit department
Proper oversight including reviews, reconciliations, and approvals of transactions
Management certification of financial statements
Delegations of authority and clearly defined responsibilities in position descriptions
External audit or internal controls over financial reporting
Document and update policies and procedures, including agency decision-making on key topics
Verify and periodically audit appropriate state employee access to systems - update roles during the Annual Security Review and Verification .
Cybersecurity controls, guidance, and policies provided by Minnesota IT Services (MNIT)
Independent audit committee
Established hiring policies and procedures requiring reference and background checks
Fraud training for all employees
Automated transaction/data monitoring
Physical access controls such as keycard access, surveillance, and security desks
Short Video Clips
Review these videos for more information on implementing internal controls.
Table 2: Short video clips, video length, and video description
Minnesota Management and Budget’s Internal Control and Accountability Unit (ICA) offers resources, training, and consultation for executive agencies to prioritize and document their internal control systems. The unit offers content for Fraud Awareness and Prevention Week for a tenth consecutive year, aligning with the Associated Certified Fraud Examiners (ACFE) annual International Fraud Awareness Week.
Resources: Occupational Fraud 2022: A Report to the Nations.