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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

Fraud hotline

Verify and periodically audit appropriate state employee access to systems - update roles during the Annual Security Review and Verification .

Management review

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

Anti-fraud policy

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

Video Sequence

Video Length

Video Link and Description of Video

V 3.1

4:18

LinkedIn: Accounting Foundations: Internal Controls (Proper procedures and documents plus independent checks)

V 3.2

3:26

The Sample - Where There is Risk, There Must Be a Choice

V 3.3

10:01

The Sample - What Is Segregation of Duties?


About ICA

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.

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