It is important for a business to closely monitor and control its bank reconciliations and other account-related activities to help prevent fraud, according to a noted Philadelphia forensic accountant and Certified Fraud Examiner.

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, previously has written about various aspects of the role that bank reconciliations play in enabling or preventing fraudsters from embezzling or diverting funds.

In this article, Anderson looks at various features of such types of fraud and the steps that can be taken to prevent them.

To start, there’s the diversion of bank deposits or improperly receiving cash from bank deposits. To prevent this fraud from occurring, according to Anderson – a forensic accounting expert in Philadelphia with experience in conducting fraud investigations and establishing comprehensive fraud deterrence programs in the Delaware Valley – the duties of preparing deposit slips, making the bank deposits, recording the deposits in the company’s accounting system and performing the bank reconciliation should be separated from one another.

Another typical fraud pattern involves the improper withdrawal of funds via the use of counter checks, or out of sequence checks. To keep this from taking place, the duties of check signatory, physical control of checks and bank reconciliation should be separated from one another, says Anderson, a Philadelphia forensic accountant whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.

One more commonly seen scheme also deals with the improper withdrawal of funds but, in this case, fraudsters use transfers to other accounts at the same bank, ACH (automated clearing house) payments and wire transfers to receive their ill-gotten gain.  Anderson, a Certified Fraud Examiner in Philadelphian, said this particular fraud plan can be thwarted by keeping persons who have the authority to perform these transactions separated from the bank reconciliation function.

Also, the improper use of business ATM cards, according to Anderson, can be prevented by keeping the persons who have the use of these cards separated from the bank reconciliation function.

While Anderson, a Philadelphia forensic accountant and 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, said he recognizes that – especially in smaller companies – it might not be possible to separate such functions, he suggests adding these controls:

• Have bank statements (along with copies of paid checks) mailed directly to the home of the business owner or senior executive (other than the executive who performs the bank reconciliations).
• Have that person open and peruse the bank statements looking for unusual transactions and checks. These actions, said Certified Fraud Examiner in Philadelphia Anderson, can include the improper use of ATM cards, lower amounts of deposits than expected, unexpected ACH payments and wire transfers, transfers to unknown bank accounts, out of sequence checks, counter checks, checks paid to unknown parties, and checks paid to known parties but for larger amounts than expected. Only after these items have been inspected (which doesn’t take much time) should the documents be given to the person performing the bank reconciliation.
• Have the completed bank reconciliations reviewed by the business owner or a senior executive. The reviewer, said Anderson – a forensic accounting expert in Philadelphia with experience in conducting fraud investigations and establishing comprehensive fraud deterrence programs in the Delaware Valley – should ask questions about such items as deposits in transit (bank deposits that have been already recorded on the company’s accounting system but which were not received by the bank as of the bank statement cut-off date) and unpaid checks that are more than 90 days old as well as anything else that seems out of the ordinary or unusual.  Many small companies utilize an outside expert such as a forensic accountant or Certified Fraud Examiner to regularly review completed bank reconciliations.

By adding these controls to bank accounts and bank reconciliations, Anderson said a company can go a long way to preventing many types of fraud.

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 david@davidandersonassociates.com.

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.