Fraud Investigations Identify Lesser Known Fraud Schemes

Employers generally are savvy about the more common types of fraud that plague businesses and may have enacted fraud controls and fraud deterrence programs to prevent them.  But fraud investigations have shown that equally savvy fraudsters know their employers often overlook lesser-known fraud schemes — an oversight that leaves them free to pursue fraudulent activity.

“Fraudsters usually are very smart people,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware  Valley.  “They have to be smart to hide their fraudulent activity for long periods of time and also to identity those lesser-known fraud schemes that are unlikely to be on their employer’s radar.”

Anderson, a forensic accountant who also is a Certified Fraud Examiner in Philadelphia, said one type of lesser-known — but still lucrative — fraud schemes involves the fraudulent manipulation of checks by employees.

One of these check schemes involves the diversion of customer checks, Anderson said.  Typically, this type of scheme is carried out by a fraudster who has the ability to intercept a customer’s check before it is recorded or entered into the company’s accounting system.

The employee sets up a bank account with the same or similar name in order to deposit the check in his/her bank account, said Anderson, a forensic accounting expert in Philadelphia who recommends that every company enact a comprehensive fraud deterrence program developed by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.

To cover the amount of the customer’s check, Anderson said the employee enters a credit adjustment to the customer’s accounts receivable account for the amount of the check, effectively reducing the amount owed by the customer and eliminating any possible notice that the check was diverted.  The employee usually hides his/her action by charging the credit adjustment against returns and allowances or some other revenue adjustment account, Anderson explained.

Yet another type of scheme involves tampering with checks paid to the employee, according to Anderson, a forensic accountant and Certified Fraud Examiner in Philadelphia.  Under this scheme, the employee changes the payment amount on the check.  To successfully pull off this scheme, Anderson said the fraudster must be in charge of bank account reconciliation so that he/she can manipulate the reconciliation to hide the difference between what was recorded on the books and what was paid by the bank.

A third type of these lesser-known check schemes involves the use of out-of-sequence checks, said Anderson, a forensic accounting expert in Philadelphia.  The perpetrator of this fraud generally is an employee who has access to a company’s checks and is in charge of the bank account reconciliation.

Anderson said the fraudster takes one or more checks from near the bottom of the company’s stock of checks.  For example, if the company is using checks with check numbers in the 3300 range, the employee takes checks in the 9400 range to use for the scheme, Anderson said.  The employee than makes payments to himself/herself with the out-of-sequence checks, and as with the previous scheme, hides this by manipulating the bank account reconciliation, according to Anderson, a forensic accountant whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.

Anderson said companies can fight these check schemes by following these effective fraud deterrence measures:

  • First, separate the duties of the employees who open the mail, record the receipt of the customer checks, enter the checks into the accounting system, deposit the checks and perform the bank reconciliations;
  • Assign a higher level manager (other than the person who performs the bank reconciliation) to review bank reconciliations and copies of cancelled checks;
  • Ensure that the stock of blank checks is secured and can be released only by a higher level manager; and
  • Periodically inspect the check stock to ensure that no checks are missing.

In some companies, Anderson noted, there are not enough employees to allow for the separation of duties or to follow all of the recommended fraud deterrence steps.  In these cases, he said, the company should consider engaging an outside fraud deterrence specialist to conduct periodic reviews that will ensure employees are not engaging in fraudulent check schemes.

If you require the services of a Certified Fraud Examiner in Philadelphia or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at

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 in Philadelphia who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Valuation Analyst and a Certified Fraud Examiner in Philadelphia.