Internal Control Issues for Treasurers

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Internal Control Issues for Treasurers

• Presented by
• Michael A. Gallanis, CCM, CPA
• Principal

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Treasury Strategies, Inc.

• Founded in 1982
• Consults on matters related to
• Treasury operations
• Treasury performance
• Treasury technology
• Payment systems
• Liquidity management
• Clients include users and providers of treasury
  services
• 20 consulting professionals
• Offices in Chicago and New York

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Internal Control

• The goal of internal control in an organization
  is to
• safeguard assets and ensure accuracy in company
• records

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Where is Treasury Vulnerable?

• Internal Fraud
• External Fraud
• Errors

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Areas of Vulnerability - Internal

• Internal Fraud
• Disbursements
• Receipts
• Cash on-site

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Areas of Vulnerability - External

• External Fraud
• Disbursements
• Receipts
• Cash on-site

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Areas of Vulnerability - Errors

• Errors
• Disbursements
• Receipts
• Other areas

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Areas of Greatest Exposure - Fraud

• Internal Fraud
• Checks
• EFT
• Cash on-site
• External Fraud
• Checks
• EFT Unauthorized initiation

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Areas of Greatest Exposure - Errors

• Transaction oriented
• Check and/or EFT payments made for wrong amounts,
  to the wrong payees or on the wrong date
• Payment application errors
• Debt/investments executed for erroneous amounts
  or incorrect terms
• F/X exposures miscalculated, under/over hedged
• Credit over extended, under reserved
• Tax filings and/or payments missed
• Accounting entries recorded in error

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Check Fraud

• EY study estimates annual forged check losses at
  10B ( Source Bankinfo.com )
• 1.2 million fraudulent checks enter the banking
  system daily
• Check fraud is expected to grow at an annual rate
  of 12 to 15
• From 1990 to 1996, cases of check fraud involving
  large dollar items (over 100K) grew at 300
• Source Global Treasury News

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Electronic Funds Transfer

• Approximately 2 to 3 trillion moves around the
  globe each day through EFT
• Statistics on wire fraud are not readily
  available
• Estimates suggest as much as 80 of fraud losses
  are due to insiders
• Experts believe that there are many more losses
  than are ever reported

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The Cost of Errors

• Additional bank fees
• Lost interest income/added interest expense
• Added audit/accounting
• IRS penalties
• Internal resource costs
• Opportunity costs
• Consulting costs
• Impact on reputations, moral
• Your career?

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Measures to Detect /Prevent Fraud

• Controls over check disbursement
• Positive pay/reverse positive pay
• Imaging technology to review exceptions
• Safety features on checks
• Treat check stock, stamps, plates, issuance
  equipment as if it were gold
• Centralize check issuance
• Limit signers and keep documentation current

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Measures to Detect /Prevent Fraud

• Controls over EFT activity
• Centralize EFT function
• Perform all transfers by computer
• Establish firm guidelines for EFT requests
• Require dual review/release of all non-repetitive
  transfers and all large repetitive transfers
• Perform timely reviews of bank balance reporting
• Ensure that passwords are changed frequently
• Do not EVER allow sharing of passwords
• Establish maximum wire limits

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Measures to Detect /Prevent Fraud

• Controls over cash
• Limit the amount of cash kept on-site
• Use armored car services to make deposits
• Require dual-party involvement in counting
  deposits
• Audit petty cash, vaults, registers periodically
• Perform timely reconciliations to match deposits
  to cash concentration

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Measures to Detect /Prevent Fraud

• Other Controls
• Timely reconciliation is essential to identify
  problems and minimize liability ( UCC 4 )
• Segregation of duties is key to strong controls
• Crime insurance is a desirable stop loss
  measure
• Perform background checks of key personnel
• Establish and maintain clear, concise
  policies/procedures
• Perform self assessment reviews and audits
• Cross-train and rotate personnel periodically

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Conclusion

• Time spent in planning for the detection and
  deterrence of fraud and errors is time well
  spent
• Several of these measures not only strengthen
  your controls, but may add efficiency to your
  operations
• As you implement these controls, plan the
  necessary steps to maintain them in the future

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Thank You, My Time Is Up.

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Internal Control Issues for Treasurers

• Presented by
• Michael A. Gallanis, CCM, CPA
• Principal