Forum - May 2012

tions. Jack did not understand that the CFO could write checks and yet report that the money was still there, or that internal control required management oversight of all departments, especially finance. Jack, who saw internal control as an accounting issue, delegated the task of improving internal control to the CFO. He put the fox in charge of the henhouse.

report suspicions of fraud, waste or error. They were given reporting procedures and formats, and were acknowledged for good reports. Jack thought the training was too expensive and took too much time. Unfortunately, the cancellation sent a message to employees that The Association was no longer concerned about honesty. As a result, although some employees noticed suspicious behavior — the CFO had started spending more money and had become almost obsessive about being in the office — no one reported it.

Visit the Association Forum’s “ Fiduciary and Management Duties for the Association Executive and Governing Body” Professional Practice Statement at associationforum. org>Resources>Samples and Best Practice Guidelines>Professional Practice Statements.

reconciling the reserve bank account. Jack didn’t understand that this segregation of duties, while limited, was another essential part of the “other control measures.” Allowing the CFO to take over the reconciliation completely eliminated segregation of duties; as a result, no one noticed the unauthorized checks.

2. Jack undermined internal control. Again, it was not deliberate. Jack viewed some of his predecessor’s activities as micromanagement and stopped them. First, he stopped reviewing bank activity online. He declined online access to The Association’s accounts, telling the CFO, “You handle the bank.” Jack did not understand that verification of bank balances was an essential part of his predecessor’s “other control measures.” Second, Jack gave the CFO complete authority to reassign work within his department. Without Jack’s knowledge, the CFO personally took over 3. Jack cancelled fraud pre- vention measures.

Jack cancelled the annual ethics training that had been required for all employees. Under his predecessor, employees were encouraged to share

ideas about improving operations and ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;!; ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;

Don’t Be Jack According to the Association of Certified Fraud Examiners, organizations often become victims of fraud when they put too much trust into audits and internal control processes and fail to implement specific fraud prevention measures. At The Association, the audit report was effectively ignored, internal control compromised and fraud prevention measures discontinued. Here’s how to avoid those common pitfalls: