Improving Controls Over Disbursements
By their nature vendor and payroll disbursements are at high risk of abuses and fraudulent activity. There are many things that could go wrong in the process, so it is critical that local governments establish internal controls to minimize those risks. The following summarizes some of those controls:
Checks and Outgoing Transfers
- Control access to the check stock as if it were cash.
- Control access to check signing machine.
- Prohibit signature stamps for check signing.
- Prohibit manual checks.
- Never sign blank checks.
- Limit check signing to as few people as possible, but never to individuals with general ledger posting capabilities.
- Require two employees to perform wire transfers (one initiates, other approves).
- Prohibit debit cards, especially if drawn from main bank accounts.
- Limit number of credit cards and authorized credit limits.
- Allow only one employee to use an individual credit card.
- Require vendor receipts to support all credit card charges.
- Require street address and tax I.D. for each authorized vendor.
- Never provide the vendor check to the individual who authorized the payment for delivery; instead, checks should be mailed directly to vendors.
- Require all expense reimbursements be approved by someone other than the person receiving the reimbursement.
- Use direct deposit for payroll.
- Support all payroll rates with documented authorization in personnel files.
- Remove terminated employees from payroll system (and related benefits) immediately.
- Use biometric time clocks to avoid “buddy punching”.
- Require department head advance approval of all overtime.
- Include the names and payroll amount of each employee on the payroll warrant/manifest.
- Authorize payroll warrant/manifest prior to release of payroll disbursements.
Controlling disbursements is critical to minimize the risk of theft or abuses occurring. Periodically each local government should step back and evaluate whether there are any weaknesses in the disbursement process. It is better to identify (and resolve) these weaknesses before someone with devious intent identifies and exploits them.
For more information or to work through a detailed plan with Melanson Heath, please contact us at 1-800-282-2440.
Frank Biron, CPA, Managing Shareholder