3 Proven Ways to Defeat Fraud
Nobody likes to think about fraud. It’s in our nature to be trusting of the people we work with. We’re more likely to assume that everyone is operating with altruistic motives than we are to question.
The problem – especially in the current K-12 environment, where nobody has enough money to tackle everything they want to get to – is that even the smallest lapse in judgment or concentration can have devastating consequences. Whether it's a pattern of honest mistakes or an instance of deep-rooted corruption, the end result is less money going where it’s needed most.
Fortunately, there are plenty of steps that can be taken to mitigate the potential for fraud. Here are three to get you started.
1. Electronic Time-Keeping
At first glance, this would seem to be a no-brainer. So why is it that so many school districts are still relying on cumbersome, paper time sheets to complete their payroll?
Sadly, there’s no good answer to that question. There are many options out there on the market, and the cost of ownership almost always ends up as a wash. Think about it – paper payrolls mean manual logging of hours, routing of approvals, and productivity-sinking follow-up when errors are found. Labor costs, the number one item in every school district’s budget, get inflated more often than not.
Electronic timekeeping systems take many forms – web-based portals, touch-screen timeclocks, and even mobile apps. No matter what your timekeeping system looks like, an electronic process is more efficient and more accurate, with digital audit trails and programmatic checkpoints to ensure that everyone gets paid according to the correct rates and hours. With the introduction of strict ACA requirements, the need to go digital is even more pressing. Don’t wait on this one.
2. Vendor Control
District administrators have all kinds of power over the budget, including the ability to decide which vendors to partner with. Of course, many of these deals are paid for at least in part with state and federal funds. Over the years, some have taken advantage of their authority by working out under-the-table deals with business owners to pay for products or services in exchange for kickbacks.
Vendor fraud can also happen in the accounting office, when those in charge of accounts payable have the ability to change a vendor’s name before cutting a check, then switch it back after funds have been paid out to the wrong recipient. It’s enough to make an honest person cringe, but it happens.
Both of these tactics can be cut off at the pass without too much hassle. Transparent purchasing processes, such as a request for proposal, will put eyes on competing bids and raise red flags when a company’s quote is out of line with the market. It’s almost never a good idea to put absolute purchasing power in the hands of a single person.
Check fraud is even easier to put a stopper on – much like payroll, it’s all about moving to an electronic environment. If your purchasing system logs all changes to vendor information, the ensuing paper trail will make it much harder for a wayward bookkeeper to game the system – and much easier to identify the culprit if a need arises.
3. Grant Management
It’s surprising to see how often grants are still tracked and paid out using antiquated processes. Obligations under the recently revised EDGAR make it clear that detailed financial controls are critical for any district that wants to stay out of the newspaper.
Internal controls are now expected to be compliant with the U.S. Comptroller General’s Standard and the Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Review requirements have also been upped, as district officials are now required to certify veracity of accounting on annual fiscal reports and requests for payment. Written procedures for nearly every use of grant funds are now mandatory.
At the risk of sounding like a broken record, the answer is a robust, compliant electronic solution to help you manage the funds flowing in and out of the district. It’s important to point out that EDGAR also includes provisions for the privacy and security of financial data, so district leaders need to ensure that any cloud-based system includes proper controls.
We recommend holding your financial management vendors to a minimum standard of annual SSAE 16 Soc 1 audits. This auditing standard for Reporting on Controls is focused specifically on accounting records and financial statements. Sleep easier with the knowledge that your records are in good hands.
As long as there are people out there with self-serving interests, fraud is not going to go away. All you can do is make it harder for anyone to walk away with your money. While these three tips can point you in the right direction, they’re really just the beginning. You’ll want to review your processes constantly, with an eye toward audit logs, checks and balances, and reporting accuracy.
How confident are you that you’ll pass your next audit?
For more information on how Skyward can help you with your financial controls, take a few minutes to learn more about our School Business Suite or contact us today.
Follow-Up Resource: The School Business Suite