Prevent financial fraud – Review bank statements

Bank account activity is the core source of a government’s money flow in and out. Reviewing this activity through bank statements is critical to preventing and/or reducing the risk of fraud. If the employee misappropriating funds is the same employee reviewing the bank statement and performing the reconciliation, the loss of funds could go undetected for years. Use these best practices and identify red flags when reconciling bank statements.

Deposit activity

• Evaluate the frequency of deposits and whether it meets your entity’s policies and expectations. For example, weekly deposits at an entity that requires daily deposit might be a red flag.
• Examine the amounts deposited and if they are whole dollar amounts or include change. If your fee schedule is not set at whole dollar amounts, a deposit without change could be a red flag.
• Spot-check the month’s total deposit amount on the statement to an accounting system report of total deposits recorded. Are any deposits missing from the bank but in the system?

Transfer activity

• Scan bank transfers and identify which accounts money is transferred to. Verify that these are known accounts for your agency.
• Consult a list of known agency accounts and spot check these account numbers to the transfer accounts listed on the statement.

Withdrawal activity

• If the bank statement includes copies of cleared checks, scan vendor names and who endorsed the back of the check.
• Examine ACH payment activity for frequency and overall reasonableness. Trace the ACH group (known as a batch); back to supporting documentation to see which vendors and payments were included in the batch.
• Notice any fees or charges applied on the account and whether they appear reasonable.

Next steps

If you come across any red flags or clear signs of financial fraud when reviewing your entity’s bank statements, don’t panic – we’re here to help! You should report the concern to the State Auditor’s Office so they can start an investigation, and contact our claims team for next step guidance and to get a claim filed.