Breakdown of Internal Controls DC Tax Payments
The District of Columbia seems to be the focus of when things go wrong and internal controls break down. The latest headline reads D.C. Tax Scam Could Total $31 Million Analysis Suggests Refund Fraud Scheme Was Snowballing. This is the biggest corruption case in local government history according to federal prosecutors. Ficticious payments to ficticious companies represented a serious flaw in the review and approval process within the D.C. Department of Finance Tax Office. It also demonstrates that internal controls can be circumvented by collusion as this occurred when a clerk prepared the payments and then gave them to supervisor who reviewed and approved them. Both employees as well as others were involved in the scheme. An alert bank clerk alerted authorities to suspicious activity.
This begs the question "where were the managers and the oversight in this situation" and why didn't something come to their attention over the past seven years while this was taking place. The answer of course is that these scenarios start small in order to test whether controls exist. When the perpetrators find that no one questions the payments they escalate until eventually their own greed leads to detection.
Local government auditors need to review fraud detection techniques to ensure that controls are in place and operating as planned. The last thing you want is to see your jurirsdiction's name in bold print on the front page of the local or national newspaper. Take what happened in the District of Columbia as a wake up call to pay close attention to review controls over payments in all areas
See the complete article posted on AuditNet athttp://www.auditnet.org/articles/dctaxscam.pdf