Finance board approves fraud risk assessment

Following an audit of the town of Wilton’s internal controls, consulting firm Blum Shapiro recommended separate audits be conducted to detect material misstatements, noncompliance and fraud.
On Thursday, Feb. 5, the Board of Finance decided to hire Blum Shapiro to conduct fraud risk assessments for the town, as well as the Board of Education, whose expenses represent $91.2 million, or 68.3%, of the town’s $133.6 million in expenses, according to Blum Shapiro.
Board of Finance Chair Warren Serenbetz told The Bulletin the fraud risk assessment will look at the operations of the town and Wilton Public Schools and assess where there might be opportunity for fraud.
“The assessment is not time-based. It is not looking for fraud past or present. It is looking for areas where there might be potential for fraud in the future,” he explained.
“To my knowledge, neither the town nor schools have had a fraud risk assessment conducted before.”


Mr. Serenbetz said “there was no particular reason” for Blum Shapiro’s fraud risk assessment recommendation to the town.
“Blum Shapiro is making this recommendation to all their clients as a matter of good business practice,” explained Mr. Serenbetz.
Although Blum Shapiro obtained an understanding of the town and board’s internal controls and assessed “the risk of fraud and whether or not the financial statements would be materially misstated due to these risks” during its audit, the audit is designed to “provide reasonable, but not absolute, assurance,” according to the firm’s post-audit management letter to the town.
“Because of the inherent limitations of an audit, combined with the inherent limitation of internal control,” Blum Shapiro wrote, “and because we will not perform an examination of all transactions, there is a risk that material misstatements or noncompliance or fraud may exist and not be detected by us.”
According to Blum Shapiro, businesses in the United States lose up to an estimated 7% of annual revenue to fraud, and municipalities are “especially vulnerable.”
Asset misappropriation is the most common form of fraud, according to Blum Shapiro, and “internally, fraudulent disbursements and inventory theft account for most asset misappropriation frauds.”


Of the two proposals it received — the other being from Aon, a global provider of risk management and other services — Mr. Serenbetz said, he thought Blum Shapiro’s proposal better matched his expectations of a fraud risk assessment than Aon’s proposal.
According to Blum Shapiro’s proposal, a team of “experienced certified fraud examiners” conduct its fraud risk assessments.
The first phase of the assessment consists of “identifying inherent fraud risk by gathering information to obtain the population of fraud risks that could apply to the organization.”
The second phase includes the assessment of “the relative likelihood and potential significance of inherent fraud risks based on historical information, known fraud schemes and interviews with staff and management.”
In the final phase, prevention and detection policies and procedures are proposed to “address the identified fraud risks, and strategies are developed to “mitigate the organization’s overall fraud risk.”


To undertake a fraud risk assessment for the town and Board of Education, Blum Shapiro would charge between $12,000 and $15,000 per assessment, or $24,000 to $30,000 in total.
According to Mr. Serenbetz, there is $12,000 in the budget that can be used to pay for the assessments.
Although it is unknown if $30,000 will be needed, Mr. Serenbetz suggested getting funds to cover up to that amount “just in case.”
With that, the board voted to seek the Board of Selectmen’s approval to use up to $18,000 from Charter Authority, which the selectmen approved during their Feb. 17 meeting.
According to Chief Financial Officer Sandy Dennies, Blum Shapiro plans to start in mid-March.