Iowa League of Cities
September 22, 2011
Fraud Risk Factors - Solution
Review the following internal control narrative for the City of Anywhere and identify at least five fraud risk factors:
City Hall staff includes the City Administrator, City Clerk and a part-time Deputy Clerk. The City Clerk is very dedicated and rarely takes vacation. The City Clerk is under a lot of stress and is always working late to try to get everything done. He could delegate some of the tasks to the Deputy Clerk who has offered and wants to learn but the City Clerkis unwilling to do so because it’s easier for him to do it and hedoesn’t have time to train anyone else. He always becomes quite agitated whenever the Deputy Clerk offers to help or the City Administrator suggests he delegate some of his work.
On rare occasions when he is gone or out of the Office, no one is allowed to open the mail or perform any of his duties. The City Administrator asked the City Clerk about this, but the City Clerk said he didn’t want anything “messed up” while he was gone so the City Administrator felt he should respect the City Clerk’s request. He is after all a long-time employee of the Citywho knows a lot about the City and City finances.
The City receives checks and significant amounts of cash for utility payments, which are mailed or dropped off at City Hall. Receipts are rarely written and are not pre-numbered. There has been discussion about requiring receipts to be issued for all collectionsbut sometimes some of the cash is used to purchase miscellaneous items like postage, paper supplies etc. The Deputy Clerk suggested implementing a petty cash system but the City Clerk refused to do this, stating it would just be one more thing to keep track of.
There has also been discussion about at least requiring a listing of all utility payments. The City Clerk hasn’t had time to work on this and the City Administrator is reluctant to pressure him since he is already doing all he can. When payments are received, the City Clerkputs all the cash and checks in an envelope each day and puts this in his unlocked desk drawer or briefcase until it is counted. Receipts are supposed to be deposited every day but sometimes the City Clerk doesn’t have time to count the cash every day so he counts itlater that week or as soon as he has a chance. Once the money is counted, the City Clerk prepares the deposit slip and takes the deposit to the bank.
The Deputy Clerk mentioned the City Clerk always closes his door while he counts the cash and sometimes takes it home to count. The City Clerksaid he didn’t want to be interrupted until the count was completed because it takes too long to recount. It often takes 2-3 weeks before the City Clerk has time to take these deposits to the bank.
OVERALL NO TONE AT THE TOP!
David A. Vaudt, CPA, Auditor of State