Fraud: It Can Happen to You!

Fraud: It Can Happen to You!

15 July, 2007

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 Chrissie Powers, CPA, CFE, CVA, senior manager, forensic accounting division. “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 were also able to prove the controller was buying multiple electronic items from office supply stores and selling them,” Powers said. “Both suspects served time in jail for their crimes.”

Is Your Accounting Software Safe?

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,” Powers 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, Powers explained.

“We often see employees massaging the numbers on expense reports. Many companies have policies requiring a receipt for any amount over $25,” said Powers. “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.

Listen to Your Gut

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 Powers. “Don’t wait until you are a victim.”

Programs designed to asses your potential risk, like Rea’s Fraud Risk Assessment and Uniform Detection Screening (FRAUDS™), can do more then catch fraudulent activity. They evaluate the measures you are taking to deter fraud within the organization.

Reassurance that your company has not been a victim to fraud and that you have good processes in place may just help you sleep a little better at night.