Fraud perpetrators take whatever they can get their hands on. But they generally prefer cash because it’s virtually untraceable. Fortunately, fraud experts have the expertise and tools to trace even cashbased theft.
Multiple opportunities
According to the Association of Certified Fraud Examiners, there are three main categories of cash fraud, which includes checks because they’re easily converted to cash:
1) theft of cash on hand,
2) theft of cash receipts and
3) fraudulent disbursements.
Fraudulent disbursements comprise many of the most frequently executed schemes, such as overbilling and “ghost” employee schemes.
Overbilling vendors usually submit inflated invoices by overstating the price per unit or the quantity delivered. A dishonest vendor also might submit a legitimate invoice several times.
Overbilling may involve collusion with employees of the victim organization, who typically receive kickbacks for their assistance.
Employees also can conduct billing fraud on their own, submitting bogus invoices payable to a fictitious vendor and diverting the payments to themselves. Similarly, an employee might set up payroll disbursements to nonexistent employees.
Suspicious signs
Cash can be difficult to trace once it’s in the hands of a thief. But forensic experts usually are able to trace the path that stolen cash took before the fraudster pocketed it. This includes who “touched” the cash and what prompted its flow out of the organization.
Inflated invoices, for example, often leave a trail of red flags. Experts look for invoices that bill for “extra” or “special” charges with no explanation.
Other suspicious signs may include:
Round dollar amounts
Amounts just below the threshold that requires management’s sign-off, and
Discrepancies between invoice amounts and purchase orders, contracts or inventory counts.
If forensic experts suspect that fictitious billing has occurred, they often investigate accounts with no tangible deliverables — such as those for consulting, commissions and advertising — and check vendor addresses against employee addresses. Invoices with consecutive numbers or payable to post office boxes receive extra scrutiny.
Other avenues to explore
Returned checks can supply useful information, too. Fraud perpetrators are more likely to cash checks, whereas legitimate businesses typically deposit them and rarely endorse checks to third parties.
To trace ghost employee schemes, experts examine payroll lists, withholding forms, employment applications, personnel files and other documents. The information collected from these sources may provide vital links between actual and ghost employees that wouldn’t otherwise be apparent.
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