July 11, 2016

This story, brought to us by irs.gov, illustrates a scheme that doesn’t often get a lot of attention, but it can provide fraudsters with an open door. In this case, the method used to cover up the fraud was to record automotive allowance payments to employees who were still listed as active in the accounting system, but who were no longer actually employed by the company. The payments were actually going to the fraudsters, and the amounts piled up after a while. A similar scheme can be used with vendors that are no longer used by a company, or even customers.

Regardless of the frequency of a particular scheme, the common theme in fraud is that a fraudster will identify and exploit a weakness in the internal control system. In this case, that weakness was a “messy house.”

When you are done cooking in the kitchen, you clean up and put the pots and pans away. When you are done playing a board game, you pack it up and put it away. The same habits need to apply here to keep your accounting “house” in order. A good habit to start is a periodic cadence of clean up. Going through the payroll roster, the approved vendor list, and the customer list at least quarterly will help keep things clean and defend against fraud schemes. Other controls, such as reviewing the chart of accounts for new accounts added, can be scheduled at this time as well.

A clean house is a healthy house. Having the discipline to scrub down your systems from time to time will help cut down opportunities for potential fraudsters.

© Clark Nuber PS and Focus on Fraud, 2016. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Clark Nuber PS and Focus on Fraud with appropriate and specific direction to the original content.

This article contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.