The Embezzler
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The H&S Companies Fraud and Forensic Accounting Division is dedicated to
detecting and eliminating fraud in the workplace. A simple fraud risk assessment
— performed by Kit Powell, Certified Fraud Examiner — will give you a
detailed report with recommendations on how to strengthen internal
controls to prevent fraudulent activity. Contact Kit today to learn how to
protect your business from fraudsters.
Expense Report Embezzlement
How Employees Pull It Off And Ways To Prevent It
By Kit Powell
If you are
concerned that
fraud may be
occurring in your
place of business,
a good first place to check is in
the area of employee expense
reimbursement. Employees
that state false information
on their expense reports are
likely to be committing some
other type of fraud. There
are four types of expense
reimbursement fraud, which
are: mischaracterized expenses,
overstated expenses, fictitious
expenses, and multiple
reimbursements.
Mischaracterized expenses
are the most common and
occur when the employee seeks
reimbursement for ineligible
non-business expenses. A
common example is lunch
with a friend that is classified
as a business development
lunch.
Overstated expenses occur
when employees overstate
their expenses to receive top
dollar on their expense report.
This often occurs when a
business does not require
documentation be attached to
expense reports. Even when
support is required, employees
can still alter the supporting
Be sure to review
expense reports, and
watch for...
Travel and entertainment
expenses that are
significantly over budget
from prior years
Because you brought your laptop doesn’t necessarily mean you’re having a business lunch.
documents by photocopying
receipts, obtaining blank
receipts from vendors, or
generating phony ones on a
personal computer.
Fictitious expenses are
expenses that were never
incurred or were paid by
another person. This often
occurs when multiple
employees go on the same
business trip and all employees
state they paid for the same
expenses.
Multiple reimbursement
schemes are when expenses
are reimbursed two or three
times for the same expense.
A common scheme is an
individual paying for a trip
on the company credit card
and keeping the receipts. The
individual will then enter the
receipts on his/her expense
report to be paid for again.
If an employee commits
expense reimbursement fraud
they may not commit other
types of fraud, however,
studies have shown that a
correlation exists. If you
suspect fraud is occurring
within your organization, these
are the employees you may
want to scrutinize first. 
 If you are concerned
about fraud in your business
contact Kit Powell today at
616.735.3104.
Fraud Facts
According to the ACFE’s
2012 Report to the
Nations the median loss
caused by occupational
fraud was $140,000
The frauds reported
in the survey lasted
a median of 18
months before being
detected
About 87% of
perpetrators are first
time offenders
Source: ACFE’s Report to the Nations
4575 Lake Michigan Dr. NW
Grand Rapids, MI 49534
Expenses claimed by
employees on dates
or times they were not
working
Expenses that lack
support or are
accompanied by
photocopies rather than
original documentation
Round numbers on
expense reports, ending
in “0” or “5”, with no
cents
Expense reports
approved by the
employee or managers
outside the employee’s
department
After They Embezzle...
Prevent Bad
Hires With
Background Preventing Fraud Is Best, But Have A Plan If It Does Happen
By Kit Powell
Tips to Prevent Fraud
Checks
Embezzlement
Background checks can help eliminate
potentially hazardous candidates.
By Ashley Clonan
Criminal
background
checks are a first
line of defense
that businesses
can use to weed out potential
fraudsters and problem
employees, but many choose
not to take this simple first
step. You don’t need to be a
detective to run a background
check; it can be as easy as
creating a profile on the state
website and running reports as
needed.
The first thing to consider
is whether you want to run a
state or national background
check. If you run one for just
the State of Michigan, any
crimes committed elsewhere
will not appear in the search
results. Also, keep in mind, the
database is only as accurate
as the information fed to it. If
someone was convicted of a
crime yesterday, but it hasn’t
been entered in the system yet,
you won’t see it in the results.
You will want to make
sure to consider hiring best
practices and industryspecific requirements when
implementing background
checks so you don’t set
yourself up for lawsuits. Define
ahead of time what types of
crimes would cause you to
retract an employment offer,
and be consistent in enforcing
your policy. Although there is
no defined law regarding when
you may run a background, it’s
best to do so after you’ve made
a job offer. Be sure to define
in the offer that employment
is contingent upon passing the
background check. The HR
specialists at H&S can help
you develop a policy or even
facilitate running the checks.
 To learn more about
implementing a background
check policy contact Ashley
Clonan at 616.884.7949.
Scan with your smartphone to
download our background check
implementation list
has been the
number one
financial crime for
the past 30 years.
If an employee embezzles,
then the employer has already
lost. Of those losses the
employer suffers a financial
loss, a loss of trust, and
additional revenue loss from
litigation matters that follow
the embezzlement. To avoid
embezzlement embarrassment,
employers have to move
quickly, as the financial impact
will likely have a greater effect
than was first suspected. The
employer has to stop the
damage quickly and conduct
a fraud examination. If
stockholders are involved
then the employer has the
responsibility to investigate
and recover the losses. If you
have an embezzlement issue
come up, follow these three
steps in order:
Contact Legal Counsel and
Your Insurer
Contacting legal counsel is
an important first step because
sometimes the employee’s
rights can be violated even
though they were the one who
Restrict access to master
Q: How is fraud discovered?
files to prevent ghost
A: Frequently, by a tip from...*
employees or pay rate
modifications
Restrict access to vendor
Customers 22.1%
files to prevent creation of
Employees
50.9%
phony vendors
Install a segregation of
Other 11.6%
duties
Anonymous 12.4%
Rotate personnel among
Owners 2.3%
financial duties on a
regular basis
Vendors 9%
Competitors 1.5%
Source: ACFE’s Report to the Nations
*Please note survey participants were allowed to select more than one option
committed the crime. Contact
your insurer also because
failure to do so could void
potential losses from being
covered.
Secure Data
A fraud auditor will know
what information and data to
secure and back up. A good
start for an employer is to do
the following:
 Create a mirrored hard drive
of the employee computer
 Secure electronic backups in
the network and local drives
of original data
 Secure CDs, disks, thumb
drives, etc.
 Search the offending
employee’s desk and office
for any sensitive information
(review handbook policies
with attorney first)
Deal with the Employee
Management should follow
their legal counsel’s advice in
dealing with the employee as
swiftly as possible.
Remember, fraudulent
activities are easier to prevent
than to detect. Make sure you
have a plan in place, and know
what to do should fraud occur
in your business.
 To learn more about
preventing embezzlement,
contact Kit Powell at
616.735.3104.
Protect Your Non-Profit From Fraudsters
A common problem
for churches and not-forprofit organizations is
embezzlement, which occurs
because decision makers
are often times too trusting,
internal controls are lacking,
and even the simplest checks
and balances are not in place.
Because these organizations
want to welcome and trust
everyone, fraudsters can
easily take advantage of their
goodwill. Most fraudsters
place themselves in multiple
groups in a church and gain
the “trust” of fellow members.
Once the trust is there,
fraudulent activity is easier to
pull off. I have worked with
several churches and not-forprofits that have had the same
answer as to why they were
defrauded: “I never thought
he/she would steal from us”,
“we trusted him/her”, “She is
a good person”, “outstanding
Christian”.
Be sure to not give church
group members too much
access to money and other
valuables without church staff
present.
Employees working for
not-for-profits and church
organizations have also been
known to commit fraud.
According to the Association
of Certified Fraud Examiners,
Little do they know, he’s going to pocket that money.
in 2012 the median loss for
not-for-profits from fraudulent
activity was $100,000. There
are many factors that drive
people to commit fraud. Red
flags include:
 Extraordinary medical
expenses of the employee or
a family member
 Loss of spouse’s
employment
 Financial struggles of
children
 Divorce
 Gambling problems
It’s important to know
what may be going on in the
lives of personnel that have
the potential to appropriate
assets of your business
Summer 2012 | The Embezzler | hscompanies.com
for their personal use.
Remember the importance
of internal controls! Things
like segregating job duties,
rotating job duties, and
instituting a system of checks
and balances can all help
deter fraud. Overall donations
and contributions have been
down the past couple years,
the last thing a not-forprofit organization needs is
embezzlement to occur.
 If you are concerned about
fraud in your not-for-profit,
contact Ashley Clonan today
at 616.884.7949.