Five easy internal controls your government should implement

During an audit, your CPA firm assesses risk of misstatement, identifies control deficiencies, and reports findings to the management and the governing body. Management and the governing body then assess risk of misstatements due to fraud or errors and determine what controls the organization needs.

One area prone to fraud is the disbursements process. While you should first perform a cost-benefit analysis prior to implementing new controls, there are some controls over disbursements to consider that require minimal investment. Baker Tilly’s audit team encourages you to consider implementing the following low-cost controls over disbursements:

Disbursement controls

  • Review sequencing of checks and/or electronic payments provided against documentation of approvals
  • Analyze wire transfers and other electronic payment records

Vendor controls

  • Validate any suspicious vendors
  • Clean up your vendor list
  • Review records for any duplicate payments

Payroll controls

  • Review sequencing of checks and/or direct deposits to ensure that the complete population is subject to approval
  • Generate exception reports and review changes made, specifically those to bank accounts used for direct deposits
  • Review employee roster for duplicate employees

Purchasing controls

  • Ensure purchases above a defined threshold require prior approval
  • Confirm that P-Cards or credit cards are properly limited
  • Periodically review purchases for unusual activity including multiple purchases at one location just below the approval threshold
  • Ensure supporting documentation is required and reviewed for purchases
  • Separate purchasing and approval functions

General accounting controls

  • Establish a journal entry review and approval process
  • Implement system controls when practical

Fraud can take many forms. It’s important to continuously assess the environment your organization operates in, including an environment with increasing electronic commerce and filing systems. New forms of financial transactions create opportunity for errors that may be intentional or unintentional. Ensuring there are adequate controls over both traditional and electronic processes and periodically reviewing those controls can help mitigate your susceptibility to fraud.