David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, forensic accounting, and marital dissolution services in Philadelphia and the Delaware Valley. . . . In this blog installment, Anderson discusses a simple change every business can take to help stem internal fraud.
During the past two years, the most frequent fraud I have investigated has involved a trusted employee with the ability to write and sign checks. In such instances, these individuals write checks to themselves or a compatriot but record the checks in the company’s accounting system as having been written to either a vendor or another employee. Each employee was able to take more than $100,000 from their employer using this simple scheme. In most cases, these frauds were perpetrated over many months.
In every case investigated, the employer failed to take the one basic action that could have prevented the fraud: reviewing the monthly bank statements and copies of the paid checks. In each case, performing this one action – which typically takes less than one hour a month – would have allowed the business owner to notice the multiple checks written to each employee or compatriot. Additionally, the business owner also may notice that account balances as shown on the bank statement are lower than the business owner may have been told.
Here are a few additional factors to consider:
- In about 50 percent of the cases I investigated, the trusted employee was not able to sign the checks but was provided with a signature stamp of the owner’s signature. This situation puts the business at even higher risk of fraud.
- If your bank doesn’t routinely provide hard copies of paid checks with its bank statement, you should spend the extra money to obtain them. Going online to inspect each paid check is considerably more time consuming, and asking your trusted employee to print out each check affords the employee the opportunity to “hide” the evidence. For example, not printing out the suspect checks by claiming that they haven’t been paid yet.
- You also should consider having bank statements sent directly to your house instead of to the office. Again, this prevents your trusted employee from potentially altering the bank statements. In one case, the employee downloaded a copy of the bank statement as a .pdf, and then used software to alter the document and hide the evidence of fraud.
- If you believe that this action is still too time consuming for you, you should consider having either your outside accountant or a third party (such as a forensic accountant) regularly perform this action for you.
Do you need the services of a Certified Fraud Examiner? If so, you should speak with one from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. You can do this by contacting the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at firstname.lastname@example.org.
About David Anderson & Associates
David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services. Company principal David Anderson is a forensic accounting expert who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner, and a Certified Valuation Analyst.