The Bottom Line
The Bottom Line is where Klatzkin’s advisors provide analysis and insight into key developments in taxation, accounting, and other issues and how they affect businesses and individual taxpayers.

Fraud: Is Your Independent School Safe?

Fraud can happen anywhere, and administrators in independent schools are often unaware that it is happening because they are not looking for it. Some common types of fraud committed in schools include, but are not limited to, conspiring with outside vendors to provide kickbacks, misuse of school-issued credit cards, and theft of equipment and other property. Following are a few examples of the types of fraud that can occur within independent schools and some suggestions to help protect your organization:

  • The Fraud Triangle – Pressure, rationalization, and opportunity are the core elements of fraud. Pressure, whether from internal or external sources, can drive a person to commit the act. Rationalization reduces the offender’s moral inhibitions, allowing a person to justify the action. Opportunity is the element that enables it to happen.
  • Action item: Opportunity is the element that schools have the most control over. Management should focus the majority of their efforts on preventing fraud by limiting the opportunities for it to occur.
  • Be Proactive- The threat of a future investigation can reduce the occurrence of fraudulent behavior from 75% to only 43%. It is far better, and less costly, to take preventative measures as a part of normal operations than to be reactive after the fraud has occurred.
  • Action item: Don’t wait for suspicions of fraud to take action. Put preventative measures in place that will deter and discourage potential fraudsters. Train your employees always to follow procedures, question unusual items, and never override controls.

Implement Internal Controls

Proper internal controls can reduce the opportunity a potential fraudster has to commit the fraudulent act. Once implemented, the controls and procedures should always be followed without exception. While it may be more challenging to implement in a smaller business office, any deterrents put in place will reduce your risk and exposure to fraud.

Action item: Segregate duties as much as possible. Create approved vendor lists. Require dual signatures or authorizations. Accept original receipts only. Also, make sure you are leading your team by example – no exceptions to the rules!

Uncovering Fraud

You are twice more likely to discover fraud by accident than for it to be discovered by your external auditor. The most common way fraud is uncovered through tips. These tips can come from employees, parents, vendors, or others.

Action item: Implement an anonymous reporting system and educate your employees on it so they can easily report suspicions of fraud. Once reported, investigate every incident.

If you have any questions regarding how to mitigate fraud risk at your independent school, please contact us at 609-890-9189 or click here to contact us.          

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