What can a city do beyond bonding to control possible liabilities?
When issuing bonds, the surety company reviews the city’s internal controls in the underwriting process to determine if adequate controls have been implemented. As the limits of coverage increase, internal controls are more closely scrutinized. Many entities will have an audit, although the auditor is not required to specifically look for fraud in their auditing process. Most embezzlement is the result of inconsistencies found in the auditor’s tracing funds through the city’s books and records. A key risk management tool is the implementation of sound internal controls that require the segregation of duties of individual officials and employees. Reconciliation of bank statements by someone not authorized to deposit or withdraw, countersignature of checks (or a voucher system) and joint control of securities by two or more persons are basic controls an underwriter looks for when reviewing a risk. A prolonged loss could exceed the bond amount, therefore the observance of good controls is
