There are many different fraud tampering schemes. One area that is easy to tamper with is checks. When considering your organization’s vulnerability to fraud, here are a few questions to keep in mind to help mitigate the risk from tampering of checks.
Blank checks, which can be used for forgery, should be stored in a secure area such as a safe or vault. Security to this area should be restricted to authorized personnel. Keep in mind, a locked cabinet is no good if the key is easily accessible! In addition, it is important that people who have access to blank check stock do not have signing authority. Safekeeping and authorizing should be kept separate.
Companies should complete bank reconciliations immediately after bank statements are received. The Uniform Commercial Code states that discrepancies must be presented to the bank within 30 days of receipt of the bank statement in order to hold the bank liable. Also, it will be easier to spot a discrepancy while the information of recent events is still fresh in your mind and it’s always better to catch a fraud scheme sooner rather than later.
Requiring multiple people to review and sign checks reduces the risk of check fraud. Generally, a threshold is recommended whereby larger checks require more people involved. The amount of the threshold depends on the risk level you have assessed for your organization. $2,500 may not be practical if you habitually write large checks but to a smaller organization, that may be the level where things get risky and a separate set of eyes acts as a good control.
Handwritten checks are especially vulnerable to check fraud and should be prohibited. The problem here is that they can be written without entering anything into the accounting system which means an extra close eye needs to be paid to that bank reconciliation!
Checks payable to employees, with the exception of regular payroll checks, should be closely scrutinized for schemes such as conflicts of interest, fictitious vendors, or duplicate expense reimbursements. Nobody likes chasing people down for their expense receipts, so make it a standard part of the control environment that submitting receipts before reimbursement is expected of everyone.
For more information on business matters affecting nonprofit organizations, contact Aronson’s Nonprofit & Association Industry Services Group or Brandon Williams at 301.231.6200.
Two recent movies have drawn attention to Navy SEALs: Lone Survivor and American Sniper. American Sniper, in particular, focused in part on the war’s effect on a soldier’s home and family life. In disappointing news reported by the Virginian-Pilot out of Virginia Beach, the wife of a Navy SEAL was sentenced on Monday to 18 months in prison for stealing more than $120,000 from the Navy SEAL Foundation that helps SEALs and their families in times of crisis. As always in these situations, the unfortunate stain caused on the organization’s image might ultimately cost more than the amount stolen.
Recent data from the Global Fraud Study, published by the Association of Certified Fraud Examiners (ACFE), provides occupational fraud insights by industry. The most active industries in the Washington D.C. metropolitan area (e.g., construction, real estate, technology, government, nonprofits) are among those covered in the Global Fraud Study. For the categories shown in the chart below, victim organizations in the real estate industry tend to suffer the highest median losses, followed by technology and construction.
While the median losses reported for the government and public administration category are comparatively small, it should be noted that fraud occurs far more frequently in that industry based on the cases reported in the Global Fraud Study. In terms of the type of fraud reported, cash disbursements schemes such as fictitious or inflated vendor invoices are common across most of these industries.
Aronson LLC is committed to serving the needs of the most active industries in the region, including the investigation of losses in fraud or defalcation situations. To learn more about how our Forensic & Valuation Services practice can assist your organization, contact Bill Foote at 301.231.6299.
Fraud can be devastating to nonprofits because of the impact it has on the public trust and perception. Learn more about what the warning signs of fraud are, where the highest risks are, and what to do about it in our recordered webinar offered through Lorman Education Services available on demand here: http://www.lorman.com/training/ondemand-webinar-fraud-considerations-in-nonprofit-organizations-394415EAU
The means by which employees intentionally steal or perpetrate fraud is growing immensely especially with recent advances in technology. An important question for all companies and nonprofits (especially the latter) to ask themselves is whether their security and management oversight is keeping up with the changing game of fraud perpetrators. Looking for the warning signs of fraud is a key component of any organization’s fraud risk assessment.
A few quick facts will help to setup the warning signs that fraud may be on its way to your Organization. The Association of Certified Fraud Examiners’ (ACFE) Report to the Nations on Occupational Fraud and Abuse – 2014 Global Fraud Study states that 1,445 of the 1,483 cases studied included information regarding the total dollar amount lost to fraud. The median loss from fraud was $145,000. The same report also claims that asset misappropriation is the most commonly used means of committing fraud. Additionally, the report claims that nonprofit entities make up roughly 11% of the population studied. What should be pointed out concerning nonprofits is that there has been a steady climb in frequency fraud has been committed. The study states that employees accounted for roughly 42% of occupational fraud, while managers accounted for approximately 36% and owners/executives claim the remaining 19%.
It is surprising to read (in the ACFE 2014 Global Fraud Study referenced above) that only 5% of the perpetrators studied had been previously convicted of committing fraud. That means that a lack of fraud related offenses does not always provide peace of mind.
The listing below includes a few of the behavioral red flags and portrays the rough distribution of behavioral red flags according to the Behavioral Red Flags Displayed by Perpetrators graph found in Figure 71 taken directly from page 59 of the ACFE Report to the Nations on Occupational Fraud and Abuse – 2014 Global Fraud Study:
|Living Beyond Means||44%|
|Unusually Close Association w/ Vendor/Customer||22%|
|Control Issues, Unwillingness to Share Duties||21%|
|Complained About Lack of Authority||7%|
|Excessive Family/Peer Pressure for Success||6%|
|Instability in Life Circumstances||6%|
|Past Legal Problems||6%|
Further analysis was performed in order to gain insight into how the perpetrator’s position within the organization affects red flags. The idea was to obtain an understanding of how motivations and/or pressures that vary from level to level in organizations lead to fraud. The results are as expected and consistent with the distribution of the behavioral red flags by perpetrators (shown above) however the owners/executives and managers categories had a higher rate of living beyond means than did employees. Additionally, the employees category won the financial difficulties red flag by showing a rate of roughly 40% as compared to the next highest category (managers) showing a rate of roughly 28%. In order to see the chart from the ACFE’s 2014 Report to Nations, click here and navigate to page 60 where you will find “Figure 72: Behavioral Red Flags Based on Position”.
The study also found that those individuals who committed financial statement related fraud tended to be under extreme pressure compared to those who committed fraud through asset misappropriation or corruption. Alternatively, there was a correlation found between those individuals that exhibited abnormally close relationships with a customer and/or vendor and those perpetrators that committed fraud through corruption. In order to see the entire chart from the ACFE’s 2014 Report to Nations, click here and navigate to page 61 where you will find “Figure 73: Behavioral Red Flags Based on Scheme Type”.
Lastly, gender roles were found to have played a surprising role. The results show that men are less likely than women to commit fraud while under duress from financial related difficulties, family problems such as divorce, and showing signs if instability in the individual’s personal circumstances. On the other hand, men did show a higher likelihood to display “wheeler-dealer” attitudes and abnormally close relationships with customers and vendors which correlate more with financial statement and corruption fraud. Women also tended to engage in corruption and financial statement schemes at a lower rate than men.
Another great resource “Ten Early Warning Signs of Fraud in Organizations” published by ITBusinessEdge.com can be found by clicking here.
The entire Report to the Nations on Occupational Fraud and Abuse – 2014 Global Fraud Study published by the Association of Certified Examiners can be found by clicking here or using the following URL: http://www.acfe.com/rttn/docs/2014-report-to-nations.pdf
Specific findings in the Report to the Nations on Occupational Fraud and Abuse – 2014 Global Fraud Study that were not discussed but should be noted include:
Resources used in summary above:
1) Report to the Nations on Occupational Fraud and Abuse – 2014 Global Fraud Studypublished by the Association of Certified Examiners, http://www.acfe.com/rttn/docs/2014-report-to-nations.pdf