Fraud at the top: a prominent executive, aided by several employees, embezzles US $500,000 over a 10-year period

Internal Auditor, April, 2007 by Gordon Heslop

* Documentation for any program, such as the union project, should exist and should be available to management making payments under it.

* An increased focus by internal auditors on payments to new vendors may have caught this fraud earlier.

* Payments made when no receipts, or handwritten ones, are presented are an obvious hint of fraud.

* An examination of payments to vendors, when the dollar amount is small in comparison to normal trade vendors, may have caught this type of fraud earlier.

* Checks should have been made to verify that all new vendors were properly approved.

* Payments that are significantly larger than normal, particularly per item bought, should be flagged by the accounting system for further inquiry. A close examination of the purchase of five pairs of boots may have revealed fraud.

* The address to which a payment check is sent should be matched against the addresses of all approved vendors.

* The qualifications of all job applicants should be verified directly with the degree-granting university or school.

* Management override of internal controls is a serious problem that all internal auditors must be aware of and test for.

* Whistleblower programs are vital in a business and must be supported strongly by management. Employees must be comfortable that they will not be penalized for using such programs.

GORDON HESLOP, DBA, CIA, CMA, CFM, LLB (Hons), is an assistant professor in the Department of Accounting, Economics, and Finance at Texas A & M in Commerce.

To comment on this article, e-mail the author at gordon.heslop@theiia.org.

Please send your Fraud Findings to:

Andi McNeal, CFE, CPA

ACFE World Headquarters

The Gregor Building

716 West Ave.

Austin, TX 78701, USA

Fax: 1-512-478-1444

E-mail: amcneal@ACFE.com

EDITED BY ANDI MCNEAL