Assessment reveals areas of potential fraud
The Board of Finance is looking for people with financial and accounting experience to serve on an audit committee, designed to help reduce the risk of fraud within the town’s internal controls.
The board decided to form the committee after receiving the results of consulting firm Blum Shapiro’s fraud risk assessment, which identified the following six areas of the town as being at-risk:
- Cash receipts.
- Finance Department.
- Tax Collector’s Office.
- Parks and Recreation Department.
- Building Official Department.
- Department of Public Works.
Blum Shapiro’s Litigation Services and Business Valuation Group Director Nancy Gregory discussed these six areas at the board’s May 19 meeting and recommended improved control methods that could help reduce the risk of fraud.
The finance board hired Blum Shapiro in February to conduct the assessment, following the firm’s audit of the town’s internal controls.
The fraud risk assessment was conducted by a team of “experienced certified fraud examiners” and carried out in three phases:
- Gathering information to determine the population of inherent fraud risks.
- Assessing likelihood and significance of inherent fraud risk.
- Reporting on significant inherent and residual fraud risks.
In its audit management letter to the town, Blum Shapiro recommended the town reduce its number of open bank accounts — it has approximately 27 — to “reduce bank errors and help the Finance Department better track cash on hand.”
According to Blum Shapiro, several people within the finance department know the location of the key to the file cabinet in which cash receipts are kept. Blum Shapiro recommended the town install a safe in the finance department, as well as surveillance cameras.
Blum Shapiro also recommended each department’s safe combination be limited to the department head and their designee, and the combinations should be changed on a set schedule and “upon termination of any employee who had knowledge of the combination.”
Since the police department is next to town hall, Blum Shapiro said, “the town should consider a police escort for town employees who transport deposits to the bank in excess of $1,000.”
Blum Shapiro also recommended the locks to each department office be changed on a set schedule and upon department employees.
Since the guidelines in the second section of the town’s Accounting Policy & Procedures Manual “do not rise to the level of policies and procedures,” Blum Shapiro recommended “well-defined purchasing policies for goods and services” be developed and uniformly applied across all town departments.
Blum Shapiro recommended background checks on all new vendors in order to “eliminate the possibility of fictitious vendors or possible conflicts of interest with town employees.”
The firm also recommended a system be put in place that requires each department to notify the senior accountant of purchases greater than $5,000.
As for the New World System, which the town uses to record funds and fees, Blum Shapiro noted there are no password frequency change requirements and recommended the implementation of a policy that requires all system users to change their passwords every 90 days.
Tax Collector’s Office
Wilton residents have the option of paying their tax bills online, and in order to “avoid problems with tax revenues not being reconciled in Finance in a timely fashion,” Blum Shapiro recommended the development and implementation of an interface between the Quality Data System (QDS) — used by the Tax Collector’s Office — and the New World System.
Additionally, Blum Shapiro pointed out that while QDS users are encouraged to regularly change their passwords, there is no password change requirement. Like with the New World System, Blum Shapiro recommended the implementation of a policy requiring passwords changes every 90 days.
Parks and Recreation
All four Parks and Recreation Department employees — not including Parks and Ground and Dial-A-Ride employees — currently have the ability to collect cash receipts and record receipts in the department’s Class System program, which is connected to the New World System and used for facilities booking and registration software.
Blum Shapiro recommended the department designate:
- One employee to open mail.
- One employee to log receipts into the Class System.
- One person to review the receipt entries.
- One employee to bring cash receipts to the Finance Department, which “should be transmitted to Finance on a daily basis.”
According to Blum Shapiro’s letter, cash advances of up to $750 for expenses like food supplies and field trips are routinely issued “via checks made payable to three of the P&R employees” — a practice that, according to Blum Shapiro, “should be eliminated.”
“Town accounts should be set up designated vendors to avoid cash usage for these purposes,” according to Blum Shapiro’s letter, which also stated that authorization to those accounts should be limited to the parks and recreation director, his designee and a finance department representative.
Access to the Parks and Recreation Department’s safes should be limited to the director and one designee, according to Blum Shapiro, and their combinations should be changed on a scheduled basis and upon termination of any employee who was given access to it.
Building Official Department
All three building department employees — the building official, assistant building official and administrative secretary — have the ability to enter building permit applications into the New World System and collect cash receipts, and “only the administrative secretary makes receipt entries into the New World System,” according to Blum Shapiro.
The firm recommended the following segregation of duties within the department:
- One person to receive payments.
- Another to log the receipts into New World.
- A third person to bring cash receipts to the Finance Department and enter building permit applications into New World.
To eliminate cash handling by staff, Blum Shapiro recommended the department accept credit cards for permit fee payments — something it currently is not able to for payments made in person.
Blum Shapiro noted that DPW lacks policies and procedures for the disposal of fixed assets. Because of this, the firm recommended the development and implementation of town-wide policies and procedures for such disposal.
As for town-owned equipment, Blum Shapiro recommended that DPW keep itemized lists and tag equipment with “Property of the Town of Wilton” labels.
For small equipment, Blum Shapiro recommended the institution of a bar code tagging system.
General risk factors
Aside from the six at-risk areas identified through its assessment, Blum Shapiro suggested the town conduct fraud awareness training on a recurring basis and pay significant attention to proactive fraud education initiatives.
“The town should conduct an initial orientation and ongoing education on fraud risk management, including the codes of conduct and ethics, what constitutes fraud, and what to do when fraud is suspected,” according to Blum Shapiro’s letter.
The firm also recommended the town not only establish a fraud tip line, but consider a mandatory vacation policy for all accounting and financial staff, as well as those handling cash, since “incidents of fraud are often detected when an employee is on vacation.”
Audit committee search
Finance board member Lynne Vanderslice volunteered to spearhead the committee member search and asked fellow finance board members to provide her with a list of names of people willing to join by Wednesday, May 27.
“The board is seeking people with CPA, CFO, comptroller-type experiences for this audit committee,” she said.
Because the work of the audit committee would be time-intensive, the board agreed that ideal candidates would not only have experience, but time to serve.
“Preferably a person who is retired because you want them available during the day,” said Vanderslice.
Those interested in joining the audit committee may email the finance board at firstname.lastname@example.org.
Click here to view Blum Shapiro's fraud risk assessment management letter to the town.