06/30/2004-FISCAL AUDITS - Laserfiche WebLink

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' Fraud Risk Assessment ' Comment When internal controls are initially implemented,they are usually designed to adequately safeguard assets. ' However,over time,these controls can become ineffective due to changes in technology,operations,etc. As a result,all municipalities should periodically perform a risk assessment to identify,analyze and manage the risk of asset misappropriation. Risk assessment,including fraud risk assessment,is one element of internal control. The ' Town,like most Massachusetts municipalities,does not adequately perform this assessment. The fraud risk assessment can be informal and should be performed by a management-level employee who has ' extensive knowledge of the Town's operations. Ordinarily,the management-level employee would conduct interviews or lead group discussions with personnel who have extensive knowledge of the Towns operations,its environment,and its processes. The fraud risk assessment process should consider the Town's vulnerability to misappropriation of assets. When conducting the assessment,the following questions should be considered: ' ➢ What assets are susceptible to misappropriation? ➢ What departments receive cash receipts? ➢ What departments have movable inventory? ➢ How could assets be stolen? ➢ Are there any known internal control weaknesses that would allow misappropriation of assets to occur ' and remain undetected? ➢ How could potential misappropriation of assets be concealed? ' Once the areas vulnerable to fraud have been identified,a review of the Town's systems,procedures,and existing controls related to these areas should be conducted. The Town should consider what additional controls(if any) need to be implemented to reduce the risk of fraud. Recommendation ' We recommend that management develop and implement a fraud risk assessment program to identify,analyze, and manage the risk of asset misappropriation. ' 2