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Find Fraud: Know Where You Should Be Looking

February 03, 2011

In my last post, I discussed some interesting facts about who is most likely to steal from your company and how much it is likely to cost you.

In my last post, I discussed some interesting facts about who is most likely to steal from your company and how much it is likely to cost you. (In case you missed it, here’s the link) cost of fraud to an organization can be devastating, yet many people don’t want to hear about it until it’s too late. You don’t have to be a financial expert to implement controls to prevent fraud, but you do need, at a minimum, a basic understanding of the different types of fraud in order to know what you are trying to prevent.

With that, I wanted to take some time now to highlight some of the common areas that are susceptible to fraud and the types of theft related to them.

•Cash theft schemes – these can include the obvious to the not so obvious. Under this category you will find theft of cash payments, theft of all or part of a daily deposit, skimming from a daily deposit, voided sales and/or revenue transactions, and the theft of petty cash funds.
•Accounts receivable schemes – receivables schemes are directly related to the theft of cash. These can be a bit more complicated, and can include the lapping of receivables (which involves shifting receipts amongst customer balances to cover up theft), the unauthorized crediting of customer accounts, and the re-aging of receivables in order to hide misappropriations.
•Inventory schemes – these can include the theft of inventory and supplies, as well as the scrapping and subsequent resale of inventory.
•Fixed asset schemes – these schemes can come in a variety of different forms. They can include the theft of equipment and other assets held for use, the personal use of company assets, over-purchasing schemes, as well as the recording of fictitious assets (which in turn can conceal other thefts).
•Payables and disbursement schemes – these schemes are also directly related to the theft of cash. Payables schemes can include payments made on false or inflated invoices (including those to shell companies), excess purchasing as well as duplicate payment schemes. In addition, you can have situations where the employee is brazen enough to write the check directly to themselves or a family member, as well as the stealing of check stock for future use. 
•Payroll schemes – payroll schemes can be some of the easier schemes to detect, yet they often fly under the radar. These can include payments to fictitious employees, overpaying/double paying current employees, paying terminated employees, the diversion of tax and/or employee benefit plan payments, and various expense report reimbursement schemes.
Please keep in mind that the above is just the tip of the iceberg, and some of these schemes (and others not mentioned above) can be occurring in your organization right now. Fraudsters have been getting more and more sophisticated and are continuing to utilize advancements in technology to further their efforts. You need to be proactive in not only understanding the different ways these criminals can steal from your organization, but how to best protect yourself.

In my next post, I will begin to explore these areas in greater detail, highlighting the various opportunities for internal theft and what you can start to do to protect yourself. Until then, remember, it will always be more economical to implement measures to prevent fraud than it will be to detect it.

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