Fraud often occurs when there is a lack of segregation of duties; where one employee is responsible for all phases of a particular transaction. For example, a clerk in the fire department may be responsible for accepting receipts for fire permits, posting the receipt to the permitting system, performing the cash-out proof, and preparing the remittance turnover. What would prevent the clerk from pocketing a $50 receipt in the form of currency? Who would ever know?
That’s why two sets of eyes are better than one. If the fire receipt responsibilities could be segregated between two individuals, the ability and/or likelihood of embezzlement is greatly diminished. Perhaps one clerk could be responsible for accepting receipts, and another clerk for posting the receipts to the permitting system. Both clerks should be involved in the cash-out process and sign off on the remittance turnover form that documents customer names, permit numbers, receipt amount (broken down by currency and check). Each of the two clerks acts as a fraud deterrent to the other.
What If There is Only One Clerk in Department?
If there is only one clerk in a small department, then the department head should also sign off on the remittance turnover form after eyeballing it for accuracy and reasonableness. Does the list of receipts appear complete based on the knowledge of permits issued? Are all permits consecutively numbered and accounted for? Does the list total agree with the actual remittance, including breakdown of currency and checks?
Besides departmental receipts, dual signatures of the preparer and reviewer can improve controls in several other situations, including:
- Bank account reconciliations
- Cash reconciliations (general ledger to Treasurer)
- Receivable reconciliations (general ledger to Tax Collector)
- Overlay reconciliations (general ledger to Assessor)
- General ledger adjusting journal entries
- General ledger reconciliations with departments (grants, escrow accounts, impact fees, student activity funds)
Requiring dual signatures over key accounting and reconciling tasks will improve documented oversight and help ensure a proper segregation of duties and system of checks and balances exist. Sometimes perception of detection is all it takes to prevent fraud from occurring.