Management establishes the tone at the top and the standards followed by an entire organization. A good place to begin establishing a constructive tone at the top is by adopting a written code of ethics. For the code to be of any value, it must first be followed by management and then communicated throughout the organization. The code of conduct should be consistently enforced throughout all levels of the organization and transgressors appropriately punished. Newly hired employees should be made aware of the code of conduct and the consequences of failing to comply.

Management should also periodically review policies and procedures that involve internal controls and fraud prevention and make sure those policies and procedures are up-to-date and enforced. Management should consider setting up a process for employees to report potentially fraudulent activities like a hotline, or confidential contact in the legal or human resources department.

Management should be aware of, and come to understand the purpose and operation of, their organization’s controls and should periodically review them for effectiveness.                            

Risks Risks Risks
Mismanagement Inventory control manager with few years of experience. Not having clear policies and procedures to maintain the proper inventory levels. Lack of staff training in policies and procedures. Lack of standard operating procedures or handbook that highlights procedures. Not following the guidelines of any pre-existing service agreement.

Auditing on a constant basis and at all levels.

Tracking new product line manually or, with an electronic inventory management system.

The following helpful links are provided courtesy of Accounting, Financial & Tax (AFT):

Non-Compliance with Federal Civil Rights and Drug Free Workplace Laws

Irrational employee behaviors.

Unexplained employee absences.

National Association of State Controllers (NASC) Controls Questionnaire for Civil Rights and Drug-Free Workplace

Non-Compliance with State/Local-Wide Central Service Cost Allocation Plans and Indirect Cost Rate Proposals Unwarranted profitability of internal service funds.

AGA's Subrecipient Monitoring and Self-Assessment Tool (pending)

Non-compliance with State/Local-Wide Central Service Cost Allocation Plans and Indirect Cost Rate Proposals Unwarranted profitability of internal service funds.

U.S. Department of Health and Human Services Best Practices Manual for SWCAP

National Association of State Controllers (NASC) Advisory Controls Questionnaire for A-87 Compliance

Non-Compliance with The Buy American Act

Evidence of foreign-produced materials.

National Association of State Controllers (NASC) Controls Questionnaire for Buy American Act

Problems that Could Lead to an Audit Finding Not Addressed Early Enough

Repeat audit findings.

Unallowable costs.

Non-compliance with Treasury/State Agreement (CMIA).

Excess +/- balances of federal cash.

Expenditure of federal funds outside the availability period.

Program income not identified and/or reported

AGA Cooperative Audit Resolution and Oversight Initiative (CAROI) Tools

State of Maine Self Assessment: Allowable Activities/Costs

State of Maine Self Assessment: Cash Management

State of Maine Self Assessment: Period of Availability

State of Maine Self Assessment: Program Income

Product Substitution

Altered inspection reports.

Poor cost documentation.

Counterfeit labeling.

Missing/altered serial numbers, model numbers or labels.

Significant number of field failures.

Altered/missing/late test reports.

Unexpected or premature part failures.

Restricted access to storage/production facilities.

Restricted/delayed access to records.

Latent defects.

High rejection rates.

Required certifications not signed.

Vendor, not buyer, selects samples for testing.

No warranties provided.

A common fraud scheme involves the delivery of goods of a lesser quality than was contracted for. To reduce the likelihood of this, goods should be inspected for conformity to specifications. In the case of certain types of goods, a chemical, metallurgical or similar type of test will need to be run on a sample to ensure that the product meets specifications.

Program is Not Serving the Right Clients/Beneficiaries Complaints from intended clients. State of Maine Self Assessment: Eligibility
Progress Payment Fraud

Altered inspection reports.


Physical progress inconsistent with billings.

Requests for payments inconsistent with prior cost datapdiv>

Restricted/delayed access to records.

Vendor/contractor resists inspection.

Required certifications not signed.

Contracts spanning months or years generally require that the buyer make payments during the project, before its completion. These progress payments usually match the percentage of the project that has, at the time of payment, been completed. Vendors and contractors have been known to accelerate the payments made to them by misrepresenting the extent of project completion. To ascertain the extent of completion, the purchaser should, as applicable, make inspection visits to the construction or have software projects completed in modules that can be individually tested. In construction, subcontractors produce lien waivers for payments they received and these should be available for review by the purchaser. All contracts should provide provisions allowing inspections, audits and proofs of completion. It is often of value to compare the progress of the current project against similar projects completed in the past. If it seems that billings exceed progress likely to have been made, it is a cause for further inquiries.

Recipients and Sub-Recipients Do Not Understand Requirements and Responsibilities Audit findings that go unaddressed.

Establish process to check all bidders/vendors/contractors for state/local debarment or exclusion from federal awards, suspended licenses, complaints from prior customers, etc.

AGA's Cooperative Audit Resolution and Oversight Initiative (CAROI) Tools

State of Maine Self Assessment: Procurement/Vendor Suspension/Debarment

System for Award Management (SAM)

List of Individuals/Entities Excluded (LEIE) from Federal Health Care Programs

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