by James
Marasco, CPA, CFE, CIA
Director, Corporate Services
StoneBridge Business Partners
Reprinted with permission from Fraud
Matters Newsletter of CPA America.
It can happen anywhere. Where pressures and
opportunities exist, individuals may very well commit fraud
against their employer. And, according to the Association
of Certified Fraud Examiners, after their acts are perpetrated,
they will rationalize their actions to themselves and others.
Even the most trustworthy of employees can
succumb to pressures. Stock market losses, a spouse’s
disability, college tuition and unexpected expenditures can
all lead to unavoidable pressures on your employees.
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Weak internal controls or vulnerabilities in
your organization may offer the opportunity for an employee
to commit fraud. If you suspect someone has crossed the line,
it’s time to go into detection mode. Here are some
areas you can examine.
Check the Cash
- Examine your bank statements and cancelled checks. Were
reconciliations performed in a timely manner and
reviewed by someone?
- Are any unusual adjustments or reconciling items present
on the statements?
- Compare the cancelled checks with those listed on the
statement. Were any removed or altered?
- Do any payees or addresses look suspect?
- Examine transfers and debits on bank statements. Are
they appropriate? Can you identify them?
- Have all credit memos been issued, examined and reviewed
by an independent party?
- Do refunds being made have adequate support and proper
documentation?
- Perform your own test of integrity - mail some cash into
your organization on behalf of someone’s account.
Does it get credited properly?
- Run an active vendor listing off your payable system.
Examine all P.O. Box addresses carefully. Do any suspicious
names or employee names appear? If so, run an activity
report of all disbursements made to them.
- Perform a surprise petty cash count. Do receipts for
disbursements exist and is the cash accounted for properly?
Inventory
- Do you perform unannounced inventory counts of your higher
priced products and reconcile the quantity to perpetual
reports?
- Examine receiving logs. Are shipments being logged in
correctly and examined for completeness upon receipt?
- Are shipments that leave your dock safeguarded adequately
against pilferage by the drivers?
Payroll and Expense Reports
- Review the payroll records and reporting for all those
who have access to the payroll processing system. Do they
look reasonable?
- Check the quarterly payroll reports – are there
any suspicious or “ghost” employees?
- Examine payroll records for employees with no withholdings
or P.O. Box addresses. Are they legitimate?
- Do overtime hours and pay appear excessive?
- Are all expense reports approved by an independent party?
- Examine the expense reports of those who have approval
responsibility. Are reports adequately substantiated with
original documentation?
- Are the items being reimbursed appropriate, and do they
meet your organizational guidelines?
- If you have corporate charge cards, request a credit
activity report from the issuer and review the activity
against individuals’ expense reports. Is this activity
being captured on their reports? Are they seeking reimbursement
for items already charged to the organization?
Fixed Assets and Equipment
- Is your equipment tagged, inventoried and accounted for?
- Perform a reconciliation of your current listings against
what’s on hand. Is there anything missing? Can you
narrow down who has access to it?
Information Technology and Accounting System
- Does your organization have the ability to track who
logs into your network and when?
- Can you trace where employees have gone on the network
or Internet?
- Try to determine what files are being downloaded onto
their machines. Are their actions appropriate?
- Can individuals who have access to your accounting
system modify or alter previously recorded journal entries
or check payees within the system? Check to ensure that
entries being made at the end of each month make sense
and are not being made to mask fraudulent actions of an
employee.
Call for help
If, through your investigation, you find your organization
may have been compromised in some way, contact
us. Chances
are that a perpetrator may have found and exploited other
weaknesses in your system.
You need to safeguard the organization from future losses
and quantify your current exposure. Our experience can help
guide you through this process.
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