Arizona Auditor General issues government cash receipt fraud alert

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Published Thursday, December 8, 2022
by Tom Joyce

(The Center Square) - The Arizona Auditor General's office issued an alert in hopes of stopping cash receipt fraud this week. 

The office notes that $3.2 million has been lost to cash-receipt-related fraud due to Arizona government employees in the past 11 years. 

"Cash receipt frauds are related to skimming and embezzlement schemes generally involving employees stealing incoming monies from an entity either before (skimming) or after (embezzlement) they have been recorded on the entity's books," the Auditor General's office said in a press release. "Cash receipt frauds account for 23 percent of all occupational fraud in the United States and Canada and average about 15 months in duration before detection."

There are two different ways this kind of fraud happens, according to the alert. One is via skimming techniques. These scams happen before a cash receipt is entered into an accounting system, making it more difficult to track. 

The office uses student parking permits as an example of this kind of fraud. It notes that a high school attendance secretary skimmed cash receipts; the attendant never gave students their parking permits, but never reported the money into the cash collections report and pocketed the money. 

"Because the secretary was solely responsible for issuing both parking permit decals and receipts and for recording student and associated parking permit numbers on a spreadsheet she controlled, she was able to keep cash payments and avoid detection until other employees reviewed those parking permit records," the alert says.

The other example of fraud the Auditor General's office gives is embezzlement. It happens when employees steal cash receipts after they are already in the accounting system. 

Here is how the office describes an embezzlement scheme:

"For 6 months, a joint technical education district account services manager failed to deposit in district accounts $12,321 of cash he received that was collected and recorded in prenumbered receipt books by other district employees," the Auditor General's office wrote. "This scheme was revealed when the account services manager took an unscheduled leave of absence, during which time another employee reviewed his work and discovered discrepancies in deposit records. To that point, no one had compared the prenumbered receipts maintained by other district employees to district deposit records."

Several methods exist to mitigate these kinds of fraud, the Auditor General's office wrote.

Here are the seven policies recommended by the Auditor General's office:

  • Policies and procedures -- Create and implement written cash-handling policies and procedures that effectively separate duties as described below. Regularly train employees on these policies and procedures and require employees to document their understanding in writing. 
  • Separation of duties -- Separate cash receipts responsibilities to ensure the same person is not responsible for collecting, recording, depositing, and reconciling cash receipts. Require 2 employees to open the mail and record cash receipts, noting the date, amount, and purpose. Immediately endorse checks for deposit. 
  • Automate cash receipts system -- Utilize an automated cash receipts system or cash register that records individual transactions and issues a sequentially numbered receipt for each transaction. If an automated receipts system or cash register is not used, issue prenumbered and numerically controlled cash receipt forms for all cash receipts. 
  • Timely deposits--Deposit cash receipts intact daily, when significant, or at least weekly. 
  • Reconciliation -- Reconcile validated bank deposit receipts to both cash receipt forms and amounts recorded in the accounting system. Investigate and resolve any discrepancies such as receipts missing from deposits. Investigate no sale or voided transactions to ensure reasonableness and proper documentation. 
  • Independent verification -- Conduct unannounced reviews of existing internal control procedures to enforce and verify that cash receipts are appropriately recorded and deposited. Where applicable, compare deposit records to records not related to a receipting system in order to verify all monies received are appropriately deposited. For example, as described on page 1, the high school's comparison of issued parking permit decals to cash collection reports revealed a skimming scheme.
  • Require vacation time -- Require employees who process financial transactions to take vacation time and have another employee perform their responsibilities.

The alert from the Auditor General's office is available at https://www.azauditor.gov/sites/default/files/22-403_Alert.pdf.

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