How Forensic Accountants Discover Fraud Schemes: Part One

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.

This week, I begin two-part series that will take us into the new year on how certain frauds are discovered, and what steps the defrauded companies could have taken to prevent them.

Over my many fraud investigations, I have identified the following ways the frauds were discovered:

  • By a supervisor or co-worker when the perpetrator was out of the office:
    • In one case, the perpetrator was out sick one day, and his supervisor went into his office seeking certain documents. When he opened one drawer in the perpetrator’s desk, he found a pile of cash receipt slips.  Upon inquiring of the firm’s bookkeeper, he learned none of the cash receipts slips had been recorded in the company’s accounting system, and none of the amounts received had been deposited into the company’s bank accounts.
    • In another case, the perpetrator was away on vacation. Her supervisor was contacted by a vendor with a question about a missing payment.  The supervisor attempted to locate information about the missing payment and opened the bank statement which had arrived that day.  In examining copies of cancelled checks, he noted that there were some non-payroll checks written to the perpetrator – something that was unexpected since the only checks which should have been written to the perpetrator were payroll checks.
    • Early on a Friday evening, after all the other employees had left for the weekend, the owner of a small company decided to borrow funds from the company’s $5,000 petty cash fund (it was this high an amount at the insistence of the company’s controller). When he opened the petty cash drawer, he saw that it contained no cash, only a piece of paper saying “I owe petty cash $5,000” which was signed by the controller.
  • By vendors or other third parties:
    • A service vendor called to complain that the federal Form 1099 he received was for a much higher amount than he had been paid by the company. An investigation revealed that the bookkeeper had set up a phony company and bank account with a similar name to that of the service vendor and was making payments to herself but recording them as being made to the service vendor.
    • A company’s bank called to report that it had flagged multiple checks with the same check number. An investigation revealed that the bookkeeper had purchased from the company’s check vendor a duplicate set of blank checks and had written payments to herself using the same check numbers and dollar amounts as those paid to company vendors.  She never recorded any of the “duplicate” check payments in the company’s accounting system.
    • A title insurance company held certain funds in escrow from the sale of a commercial building pending the results of a real estate tax appeal by the seller. Once the real estate tax issue was resolved, the seller requested payment of the escrow funds.  However, the check bounced.  It was discovered that the company’s controller had written checks to himself from the escrow account because he expected the tax appeal would take many years to be resolved, and he expected to be long gone before the theft came to light.
    • A customer called his vendor’s controller to advise the vendor that due to problems with cash flow, a check he had issued to the vendor had bounced. He apologized and asked the vendor’s controller to return the bounced check so that he could replace it with a cashier’s check.  Upon researching the customer’s account, the vendor discovered that instead of a payment being processed, an internal credit had been issued for the amount owed.  An investigation revealed that the vendor’s accounts receivable clerk had diverted the customer’s check to a bank account which she controlled (opened in a similar name to that of the vendor) and had issued a credit to the customer to hide the stolen check.
  • By employees who were unhappy with the perpetrator:
    • The finance director of a municipality regularly took more vacation and sick days than she was entitled. She pressured the payroll clerk to not record these days in the payroll system and threatened to fire the clerk if the clerk revealed the scheme.  One day, the payroll clerk had had enough, and reported the scheme to senior management.  The payroll clerk was not fired, but the finance director was.
    • The general manager of an auto dealership purchased three all-terrain vehicles (ATVs) as Christmas gifts for his sons. The only problem was that he used the auto dealership’s funds and listed the three vehicles as part of the auto dealership’s inventory even though the vehicles were not at the dealership.  After a salesperson was fired by the general manager, the salesperson reported the fraud to the owner.  The general manager was fired.

Of course, I could fill a book with descriptions of other fraud schemes which I have investigated.  In part two of this series – scheduled to be published on Monday, January 3, 2022 – I will discuss how each company could have prevented the fraud scheme from occurring in the first place.

Have a happy and healthy holiday season and New Year!

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.

If you require the services of a Certified Valuation Analyst 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