A Brighter Way
A Brighter Way
You lock your doors to keep out burglars. You tell your children not to talk to strangers. But what are you doing to protect your company's assets?
The following examples show how two different trusting business owners fell victim to fraud. Fictional names replace actual ones to protect both the victims and suspects.
The owner of ABC Company thought he was protecting his company's receivables. Until, that is, he discovered the controller was deleting invoices paid in cash out of the accounting software and pocketing the money. The controller was caught when a customer tried to return merchandise that had no matching invoice in the system.
"We were asked to investigate the allegation," said Annie Yoder, CPA, CFE, CFF, senior manager, New Philadelphia office. "We were able to identify all of the missing invoice numbers in the accounting system and get a signed written confession and restitution agreement."
XYZ Packaging's owner fully trusted his employees. Imagine his surprise when he discovered that his controller and human resource director were working together to steal from the company. Not only were they paying fictitious vendors and ghost employees, but they were also having the company pay their personal credit cards.
"During the investigation, we also proved the controller was buying multiple electronic items from office supply stores and selling them," Yoder said. "Both suspects served time in jail for their crimes."
The accounting package your company is using may actually help your employees divert company funds.
"Just because you are using a top-notch, all-inclusive software package, like QuickBooks, Peachtree or Quicken, doesn't mean there aren't loopholes that employees looking to steal from your company can't find," Yoder said. "Especially since these employees probably know the software better then you."
Many employees know how to override the system and what dollar thresholds need second approval. They know how to manipulate the general entry to put the dollar amount below the scope of your audit. Or, they are able to give a convincing answer to the individual questioning the entry's validity, Yoder explained.
"We often see employees massaging the numbers on expense reports. Many companies have policies requiring a receipt for any amount over $25," said Yoder. "If you were to analyze expense reports from those companies, you will see a lot of $24.99 amounts submitted for reimbursement."
In order to deter your employees from abusing expense report reimbursement, make it a policy to analyze random expense reports. Communicate this to your employees, too.
Do you feel as though someone may be committing fraud within your company? Is there a particular area, like accounts receivable, where you feel your internal controls may be lacking? Trust that feeling. Fraud is a crime of deception, and not all individuals who commit fraud are caught. So, what can you do to protect yourself?
"Have a team of forensic accounts analyze your accounting records, systems and procedures for signs of potential fraudulent activity," said Yoder. "Don't wait until you are a victim."
This article was originally published in The Rea Report, Summer 2007.
Note: This content is accurate as of the published date above and is subject to change. Please seek professional advice before acting on any matter contained in this article.
