Exercise — Answers
1.
Accounts receivable in a program are more than the fund balance in that program.
There is no cash in the program, so the TDHE or tribe is using funds from another source to
operate the program. This is called “commingling.”
2.
The general ledger is out of balance.
Incomplete or incorrect accounting entries have been made or an entry has been made for a
fictitious transaction. For example, an employee uses TDHE or tribal funds to purchase a
computer for his or her personal use at home. The employee cannot record a debit to a property
account because, as far as his employer is concerned, the computer does not exist. However, the
cash is no longer in the TDHE or tribe’s bank account, so the employee records a credit to the
cash account.
3.
Subsidiary ledgers do not reconcile with the general ledger.
This is similar to number 2.
4.
Bank accounts are not reconciled.
This indicates a poorly managed organization and possible embezzlement. The receipt of cash
may be recorded on the books but some of the cash was never deposited in the bank.
Additionally, unauthorized checks may have been written.
5.
Books are not maintained on a current basis.
This indicates many possibilities of fraud or misappropriation. Cash or property may be missing.
There may be unauthorized purchases. One program may be financially unstable and the TDHE
or tribe either does not want to disclose this information or is charging expenses for that program
to other programs.
Exercise — Answers (cont.)
6.
All payments received are not recorded in the cash receipts ledger.
Unless an employee has accidentally misplaced the money, misappropriation has occurred. The
TDHE or tribe should report the loss to the police so that an investigation into the embezzlement
can be initiated.
7.
Financial statements are not in agreement with the books.
This could be a case of misrepresentation. For some reason, an employee may not want the board
of commissioners, the tribe and/or ONAP to know the actual account balances. On the other
hand, it could simply be a case of failing to verify the accuracy of the financial statements.
Whether the financial statements are prepared by staff or an outside accountant, it is the
responsibility of the official who signs the statements to review them for accuracy before
signing.
8.
Books of account, invoices, purchase orders or other documentation show erasure
marks or correction fluid.
A variety of problems may exist. An employee may be purchasing items for personal use and
then altering the purchase order and invoice to delete those items. An employee may be in
collusion with a vendor who agrees to charge a higher than normal price so that the employee
and the vendor can share the extra money. An employee may be embezzling funds and covering
up by changing accounting entries.
9.
Bank deposit slips have been altered.
This indicates possible embezzlement. The employee who made the bank deposits may have kept
some of the money. The employee had to change the deposit slips because the bank would catch
the error. There are other possibilities if any other employees had access to both the deposit slips
and the cash.
Exercise — Answers (cont.)
10.
Adjustment entries are unsupported or unexplained.
The adjustment entries were made to cover up embezzlement.
11.
Personal checks are included in the cash fund but never deposited.
Someone wrote a bad check to the TDHE or tribe and does not want the check to bounce, or the
check is good but the person who wrote it does not want to have it cashed.
12.
Checks dated some time ago are deposited in the TDHE’S or tribe’s bank account
just before an audit or ONAP review.
Somebody never intended to pay the TDHE or tribe but had a check ready in case it looked like
they were going to get caught.
13.
Checks are not prenumbered.
Unauthorized checks have been written or checks have been written that were never recorded.
14.
Purchase orders are not prenumbered.
Unauthorized purchases have been made or purchases have been made and not recorded.
15.
Third party endorsements appear on checks.
The checks may appear to be for legitimate program expenses, but someone cashed the checks
for personal use.
Exercise — Answers (cont.)
16.
Canceled checks are not returned by the bank or other financial institution.
Unauthorized persons could be signing checks, checks could be altered, or there may be thirdparty endorsements. The TDHE or tribe has no way of knowing that these things are occurring
without reviewing the canceled checks. Of course, another possibility is that there is no local
financial institution that returns canceled checks.
17.
There are a large number of voided checks.
This condition by itself may simply indicate that many mistakes are made in preparing checks.
However, it could mean that check copies are voided while the original check is forged and
cashed.
18.
Entries are made in the books for the amount of cash deposited in the bank, which is
different than the amount received by the TDHE or tribe.
One possibility is that the amounts on the books are not the same as the amounts deposited,
meaning embezzlement or misrepresentation is occurring. Another possibility is that an
employee is “borrowing” money from the TDHE or tribe. The employee is using this money and
then reimbursing the funds. The employee is recording the amount deposited because otherwise
the employee would have to explain the difference between that amount and the amount
received.
19.
Incorrect totals are entered on cash receipts or cash disbursement ledgers.
One possibility is that there have been unauthorized cash disbursements and the ledger entry is
falsified to cover the theft. Another possibility is that cash has been received and not recorded, so
the total in cash receipts has been decreased.
Exercise — Answers (cont.)
20.
Cash is taken from one program to cover a shortage in another.
This is misappropriation. Using funds from one program to operate another program is an
unauthorized use of funds.
21.
Travel vouchers are not reconciled
Travel is an area in which an employee may be guilty of misappropriation without even realizing
it because the TDHE or tribe does not have adequate travel reconciliation procedures. If the
TDHE or tribe does not get reimbursed for the money advanced in excess of eligible travel
expenses, funds have been misappropriated. Additionally, an employee may be receiving travel
advances but has no intention of going on travel.
22.
Mileage logs are not kept for TDHE or tribal vehicles.
The vehicles are being used for personal business.