Where's the Money? Does Your Company Have Fraud Occurring?

One of the most common problems in business is trying to keep control of the money. Fraud occurs most often when opportunities are high and personal integrity is low. This can increase the risk of skimming thereby understating sales and receivables not to mention a 100% direct hit to profit. In a skimming scheme, the funds are never recorded. This is different than a larceny scheme where the sale is recorded. It is imperative to have good internal controls to avoid temptation especially from individuals that may have personal financial pressures which make compromising their integrity an option that they might never consider under other circumstances. For example, it is important to have the counting of cash and cash related deposits handled by someone other than the person who makes the deposit.

Another example of fraud is check tampering schemes. The most common detection of check tampering schemes is accidental. The highest percentage of check tampering is by employees although the highest dollar fraud is by owners. Sometimes company owners use fear of job security to intimidate an employee to override controls. Check tampering is most prevalent in small companies but the highest dollar loss is with companies who employ more than 10,000. In partnerships there should always be good controls and "open books" since it has been my experience that there is great temptation here when one partner has too much control and the other partner trusts too much without any oversight.

There are some factors to consider if you need to improve your controls and prevent fraud. The key to concealing a check tampering scheme is having access to the bank statement. One of the most common methods of concealment is to code a check as "void" in the disbursements journal. An employee can also code a check into an account which is not frequently reviewed or accounts that have extensive activity allowing the entry to get buried in the detail. Another check scheme is where a live check is stolen and a duplicate invoice from the vendor is created. If you are having suspicions of this type of activity, a little investigative work in the above areas would be beneficial to determining if in fact your suspicions are correct.

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Dianne Goodman, a CPA and Forensic CPA, and her company Comprehensive Small Business Solutions, PC, provides forensic accounting services located in Albuquerque, New Mexico, working in conjunction with lawyers, government entities and the business community. The type of services offered include analyzing financial business related issues, divorce disputes, employee theft, evaluating internal procedures for effectiveness and suggesting possible courses of action for prevention of future occurrences and creation of databases and preparing and disbursing settlement proceeds to various classes of victims.

This article was intended to provide general information about the fraud issues. It does not contain all the rules and issues that may apply. If you have further questions, I can be reached via E-mail.