Embezzlers often try to cover up by removing canceled checks they made payable to themselves or endorsed on the back with their own names. Missing canceled checks are a signal (red flag). However, people who reconcile bank accounts may not notice missing checks if the bank reconciliation is performed using only the numerical listing printed in the bank statement. Now consider the case of truncated bank statements for which the bank does not even return the canceled checks to the payer. All of the checks are “missing,” and the bank reconciler has no opportunity to notice anything about canceled checks. Consider the following story of a real embezzlement.
The embezzler hired a print shop to print a private stock of Ajax Company checks in the company’s numerical sequence. In his job as an accounts payable clerk, he intercepted legitimate checks written by the accounts payable department and signed by the Ajax treasurer and then destroyed them. He substituted the same- numbered check from the private stock, made it payable to himself in the same amount as the legitimate check, and “signed” it with a rubber stamp that looked enough like the Ajax Company treasurer’s signature to fool the paying bank. He deposited the money in his own bank account.
The bank statement reconciler ( a different person) was able to agree the check numbers and amounts listed in the cleared items in the bank statement to the recorded cash disbursement (check number and amount) and thus did not notice the trick. The embezzler was able to process the vendor’s “ past due” notice and next month statement with complete documentation, enabling the Ajax treasurer to sign another check the next month paying both the past due balance and current charges. The embezzler was careful to scatter the double- expense payments among numerous accounts (telephone, office supplies, inventory, etc.) so the double paid expenses did not distort any accounts very much. As time passed, the embezzler was able to recommend budget figures that allowed a large enough budget so his double- paid expenses in various categories did not often pop up as large variances from the budget.

List and explain the ways and means you believe someone might detect this fraud scheme. Think first about the ordinary everyday control procedures. Then think about extensive detection efforts assuming a tip or indication of a possible fraud has been received. Is this a “perfect crime”?

  • CreatedOctober 27, 2014
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