HW&Co. has assembled a downloadable Fraud Prevention Checklist to assist your business in deterring internal fraud. Lack of internal controls is a factor in about 30% of reported fraud cases, according to the 2016 Association of Certified Fraud Examiners Report to the Nations. Here is a scenario that is all too common:
Bob, the accounts payable clerk, processes checks every-other-week and has been employed by his company for over 10 years. He is liked and trusted by the company’s owner and senior management.
Bob’s wife was recently laid off and they are 2 months behind on their mortgage. He thinks if only he could just get a little extra money now to pay the past due amount, everything would be okay.
One day Bob, after receiving the processed checks to mail after being signed by the owner, discovers he could change the payee on the signed check to his wife and cash it without the company knowing. He figures he would do this for a couple checks to pay the past due mortgage, then pay it back when his wife gets a new job.
Unfortunately, Bob’s wife never gets another job and because they never got ahead, he kept stealing more to cover other expenses. He ended up stealing more than $200,000 over a 12-month period before a vendor tipped off the company.
This type of fraud can be deterred, if certain internal controls are implemented. There are two main types of internal controls:
- Preventative controls
- the best controls
- these can prevent the fraud from occurring.
- Detective controls
- detect fraud
- good to employ when preventative controls can’t be implemented or they are not cost-effective.
In this case Bob received the signed checks and changed the payee. At the end of the month, he received bank statements with check images and reconciled the bank statements.
This fraud could have been easily prevented if signed checks went to someone else for mailing. If a company cannot or does not want to segregate those duties, implementing a detective control where the bank statements are received and reviewed by the check signor or someone other than the accounts payable clerk.
The HW&Co. checklist will help you evaluate your business’s controls over the prevention and detection of fraud. Download a copy today!