Mandated vacations: Good for staff—and even better for your internal controls

When was the last time you looked at your finance team's vacation patterns? It may surprise you to learn that many frauds and other breaches of internal controls come to light only after employees go on vacation and other staff take over their tasks.

For example, in one small Washington town, the clerk-treasurer had been generating herself an extra paycheck for three years and modifying reports so it wouldn't be detected by others. Town staff only discovered her fraudulent activity when she went on vacation. The clerk-treasurer had instructed her staff to hold some work while she was gone, but they ran the payroll register anyway and quickly detected her fraud.

As part of your government's internal control policies, you should mandate vacations for staff and ensure that someone is monitoring for compliance. Your vacation policy should require that other staff perform the work of the vacationing employees while they are away.

Your policy should also require that employees take vacations in blocks of time, such as one or two consecutive weeks. That way, the substitute employee has sufficient time to perform the job duties and observe any irregularities. You may even want to remove system access temporarily to prevent vacationing employees from performing tasks remotely.

SAO is not alone in recognizing the value of mandatory vacations. Since 1995, the Federal Deposit Insurance Corp. has endorsed minimum two-week mandatory vacations as a fraud-prevention practice. Further, in its 2022 Report to the Nations, the Association of Certified Fraud Examiners reported the organizations that implemented this control saw a 50 percent reduction in median fraudulent loss amounts and duration.

Mandatory vacation policies are one of many overarching controls that we discuss in our Segregation of Duties Guide (pages 6 to 8). For more ideas on how to improve your controls, be sure to read the guide!

How to reach us for more assistance

Remember, SAO can help. If you have technical questions, submit them using our HelpDesk in the client portal.

We also have financial management specialists at SAO's Center for Government Innovation available to talk with you about best practices, resources or internal controls. For assistance, reach out to us at Center@sao.wa.gov.