Frequent Frauds Found in Governments and Not-for-Profits

Chapter 5 CASE 5: MANAGEMENT OVERRIDE

LEARNING OBJECTIVES

After completing this chapter, you should be able to do the following:

•     Identify how the governing board of a fictitious government can put pressure on staff to complete projects.

•     Identify how management override of internal controls can lead to possible fraud in a fictitious government.

BEFORE WE START

The political process varies by type, size, and nature of government, but in all cases the process places constant pressure on elected officials and other policymakers. In turn, elected officials and policy makers may put pressure on management and employees to achieve program results, provide more and higher quality services with fewer resources, or to provide resources for projects that are important to them personally.

If the “tone at the top” of a governmental organization is one of zero tolerance and fraudsters are promptly disciplined, employees may be less likely to commit fraud. A positive and open work environment, at all levels of the organization, also helps in preventing, detecting, and deterring fraud. Therefore, it is important for the auditor of governmental organizations to obtain a thorough understand of a government’s control environment when performing risk assessment procedures.

Related to the tone at the top of a governmental organization is the attitude of the elected officials with respect to management’s override of existing internal controls. Management override is an area of concern ...