We have seen a rise in financial fraud claims recently. Interestingly, the types of fraud claims and the tactics bad actors use to commit them have not changed – it is the people that have gotten bolder and attempting fraud crimes more frequently. Review the four most frequent types of fraud claims we have seen and discover best practices to prevent them.
Misappropriation of funds by staff, typically found when reconciling bank statements and when funds are handled by a single employee
- Strong oversight and independent authorization of transactions are essential to mitigate risk, you will need at least one other person to provide oversight by reconciling bank statements.
- Options especially for smaller entities include having an elected official or member of the governing body, an outside contractor, such as a local accounting firm, or a task-exchange with a nearby municipal entity, in which you perform oversight functions for each other.
Theft or misuse of checks, credit cards, fuel cards
- Maintain detailed records of staff that have access to or hold onto these, including how many checks and the card number.
- Your personnel policy should detail when to use checks, credit cards and fuel cards, who has access to them and who does not, and check-in, check-out forms for staff that does use them.
- Checks and credit cards should be locked in a secure location. Fuel cards should not be left in vehicles and should be stored in the office/city hall, or on an employee’s person when working.
Fraudulent AHC payments and wire transfers
- Require two people for wire transfers – this is essential for internal controls. You should also establish a limit to the amount of funds you can transfer per day or per employee.
- Place a block on international transfers. It's rare for a local municipality to send payments abroad and if funds are transferred out of the country, they are almost impossible to recover.
- Banks usually can have a callback service for final approval on transfers, this is useful for high-dollar or one-time transfers. A passcode or passphrase is needed to complete the transfer and can be a last safeguard from fraud.
Good faith payments to fraudulent actors
- Set up a verification process. This is an RMSA Member Standard – have a policy in place to verify new payment requests are legitimate. This can be calling the vendor contact that is already on file, not the contact on the payment request itself.
- Any changes to existing recurring payments should be verified as well. Just because you’ve been paying a vending successfully for years does not mean it is always legitimate. Vendors themselves can also be victims of fraud and impersonation.
Next steps
Don’t rely on an audit to discover fraud or verify it isn’t taking place. Every local government is responsible for safeguarding its assets before something happens. If you have any questions, are unsure if your entity has experienced financial fraud, or if you’re certain your entity has become a victim of fraud, contact our RMSA claims team right away.