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Post 2 of 5: More Fraudulent Disbursement Schemes

Fraudulent disbursement schemes provide a unique opportunity for the fraudster. The company is essentially “tricked” into making a legitimate- looking disbursement. Unlike larceny or skimming schemes, the employee is not even physically required to take custody of the funds; the money can be converted indirectly by the employee through a third source, such as a shell company or an accomplice vendor.

For our 1st post on fraud with recent examples of employee fraud, click here.

Three other categories of fraudulent disbursements include:

  • Expense reimbursement schemes
  • Check tampering
  • Register disbursement schemes

One of the most creative – and costly – fraudulent disbursements we have seen recently was in a law firm. The attorneys trusted Susan, their bookkeeper, who worked for them for many years. During that time, the senior partner’s standard practice was to read the paper copies of the bank statements with images of checks, that came in the mail. Susan had blank check stock and check signing privileges and regularly wrote herself checks, deposited them in her account, and re-coded the checks in QuickBooks to a standard vendor, but she went one step further than this common scheme!

When the bank statement with check images arrived in the mail, Susan cut and pasted images of typical vendor checks over the images of the checks she had written to herself, re-copied the statement and gave it to the senior partner. The statements looked real! For years, no one compared the check images to the check numbers and amounts on the statement. Susan stole over a hundred thousand dollars from the company before disappearing. We filed a 1099 with the IRS, and they are now hunting for her unpaid income taxes.

One type of cash larceny, thefts from deposits, is common in businesses which receive a lot of cash. One client had John counting the money and creating their deposit slips. Steve, a second employee, was responsible for taking the deposit to the bank, stapling the deposit ticket to the count sheet when he returned, and filing the information away. Steve picked up additional deposit slips from the bank, re-wrote each deposit slip in a lesser amount, destroyed the original slip, pocketed some of the cash, made the smaller deposit, stapled the bank’s deposit ticket to the count sheet, and filed it away. Due to loose money-handling procedures, this went on for a long time before we were called in and discovered the fraud.

Another standard form of cash larceny is cash register theft. In stores where inventory isn’t verified and reconciled with the cash register, store clerks commonly ring up returns to get cash when there is no real customer there with merchandise. We saw one variable of a common form of fraud in construction type businesses where Sam, a business partner, was out in the field doing contracted work with 1099’s who didn’t speak English. Sam must have felt under-compensated, because he would cut the contractors’ paychecks – larger than they were supposed to be – go to the bank with the subs, get the checks cashed, and keep part of the funds.

Simpler schemes abound, too, and many times go undetected for years. One common office trick is to order company supplies and products that come from vendors offering special kickbacks in the form of money orders and prizes. A client had an employee who was purchasing more office materials than their office could possibly need. We discovered that Janet was selling the additional paper and toner on the side.

Another simple scheme involved a restaurant manager who was ordering additional Coca Cola products and selling them to a fast food franchise manager, and pocketing the money.

At Dana McGuffin CPA, we can help prevent fraudulent activity in your business. If you suspect fraud – simple or complex – we can help you find out what his going on, and then help you build a case against the employee. If you think something’s wrong, it probably is. Call us at 817.488.8939 if you have suspicions or want to secure your business against possible fraud.

For the 3rd post in our fraud series with information on the Key Elements of Fraud, click here.

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