Embezzlement: What Every Auditor
Should Know About Cash Controls

Cash controls are an important component in the deterrence of organizational fraud. The motivation to commit fraud is usually due to pressure and opportunity to commit the fraud.

Legal elements of fraud:

• Misrepresentation of a material fact;

• Person/entity making the misrepresentation must not know it to be true;

• Misrepresentation is made intentionally to deceive;

• Person/entity believes the misrepresentation and acts based upon the representation; that person then incurs damage or loss.

Statistics show that 6 percent of gross revenues was the average loss for corporations. Companies with less than 100 staff are more vulnerable to fraud and abuse. Corporate executives account for 20% of fraud while staff, account for 80%. Fraudulent disbursements are the most common type of cash scheme.

Embezzlers are characterized as those who suffer from low self esteem, guilt, or a strong ego, faced with a pressure and recognize an opportunity to commit fraud.

Internal controls are needed to insure the accuracy of information; protect assets; evaluate operational processes; meet compliance requirements; and as a management decision tool of reliable data. Internal controls can be broken down into three major steps: 1. Determination and review of policies and procedures, 2. Testing and determining compliance to policies and procedures, 3. Evaluation of findings.

Management must provide education and knowledge of corporate codes of conduct, policies and procedures. Management, while operating under these same standards, must also provide a clear organizational reporting structure.

Management must provide a risk assessment. Information systems provide the necessary audit trail. Communications is a format that conveys the findings in a manner that is easily understood and relates to the flow of information within an organization. Control activities are the policies and procedures developed to ensure that management decisions are made. Monitoring assesses the level of compliance to an organization's established internal controls.

Daniel C. Young specializes in the investigation of health care fraud and abuse as well as providing consultation on fraud prevention. He has extensive experience directing health care fraud investigations and has consulted on complex fraud schemes involving various medical providers, institutions, policyholders and dependents. He also has experience with private insurance, Medicare, Medicaid and Managed Care Products.