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Employee Theft and Investigations
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Occupational Fraud and
Abuse
!   Is clandestine,
!   violates the employee’s fiduciary duties to the
orgainzation,
!   is committed for the purpose of direct or indirect
financial benefit to the employee, and
!   And costs the employing organization assets,
revenues, or reserves.”
The Fraud Triangle
Skimming
!   Removing cash from the victim prior to its entry into an accounting
system.
!   Unrecorded Sales – The employee sells goods to goods or services
to a customer, collects the customer’s payment, but makes no
record of the sale. Then the employee pockets the money rather
than turning it over to his employer. (doc)
!   Register manipulation (gas station, movie theater)
!   Skimming during non-business hours (store managers and
employees)
!   Skimming off-site sales (parking lots, rental agents, insurance
brokers)
Skimming
!   Understated Sales and Receivables – This is where the
sales are recorded, but they are posted for less than what
was collected from the customer.
!   Employees can take the higher amount from the customer,
but change the company copy of the receipt to reflect a
lower amount on the sale. They also might record a sale of
100 units of an item as 50 units and keep the difference.
!   False discounts – Employees with the authority to grant
discounts by accepting full payment for an item but
indicating on the register that a discount was given.
Therefore, the employee can keep the difference.
Skimming
!   Theft of Checks Through the Mail – An employee (generally one
person is in charge of opening the mail) takes checks from the mail,
before they are recorded. (Mailroom theft of government checks or
government grant funds)
!   Kiting and Lapping – covering what is stolen with money from
another source.
!   Short-term skimming – The fraudster keeps the money only for a
short while before eventually passing the payment on to the
employer. In this way, the employee keeps the interest on the cash
flow though they eventually deposit the money in the employer
account.
Converting Stolen Checks
!   The employee can have an accomplice at a bank to convert
checks made out to a business.
!   Without an accomplice at the bank, a manager can be a
“second endorser” on the check and can deposit it into his/
her own account.
!   Laundering the funds – opening an account of similar name
!   Altered payee – Add another name to the check. This may be
detected, so it is not a preferred method.
!   Inventory padding – “shrinkage”
Cash Larceny
!   Cash Larceny from Deposits - Banks
!   Other Cash Larceny Schemes – Charitable &
Non-profit Organizations
Prevention – Segregation
of Duties
!   Cash Receipts
!   Cash Counts
!   Bank Deposits
!   Deposit Receipt Reconciliation
Check Tampering
!   Forged Maker Schemes – Forgery includes not only the signing of
another person’s name to a document with a fraudulent intent, but
also fraudulent alteration of a genuine instrument. The person who
signs the check is known as “the maker.” They must have access to
blank checks (accounts payable clerks, office managers and
bookkeepers).
!   Intercepted Checks – Fraudsters usually make the checks to
themselves, but they can make them to “cash,” “vendors (legitimate
or otherwise), forgery, photocopied checks, automatic checksigning equipment, converting the check, forged endorsement
schemes (checks intended for third parties), theft of returned checks
(intercepting checks returned for bad addresses or other reasons.
Rerouting delivery, etc.
Register Disbursement
Schemes
!   False Refunds – Policy overrides in the refund
log. Overstating refunds. Credit card refunds.
!   False Voids
!   Concealing Register Disbursements
!   Prevention and Investigative efforts.
Billing Schemes
!
Cash-Generating Schemes
!
Invoicing via Shell Companies – Fictitious entities created for the sole purpose of committing fraud.
(company documents and state or local licenses can be presented to a bank with the fraudster as the
signing authority). Sometimes the fraudster uses someone else’s name. Males may use their wife’s
maiden name. P.O. Box addresses may be suspect. Sometimes the fraudster uses her/her street address.
Vendor schemes have been uncovered by comparing the vendor address list against the employee
address database. These are most successful if the fraudster is in a position to approve payments. Most
shell company schemes involve services rather than goods.
!
Pass through schemes.
!
Invoicing via Non-complicit Vendors The fraudster takes a legitimate invoice, deletes the information on it
and prints replicas and bills the victim company for much more work than originally invoiced. The
fraudster files the phony invoices for authorization, transports the invoices and collect the payment
checks.
!
Personal Purchases with Company Funds
Payroll and Expense
Reimbursement Schemes
!   Payroll Schemes – Overcharges to the victim
organization.
!   Ghost employees – People in payroll accounting
can add fictitious names to the payroll.
Fraudsters create a name that sounds similar to
someone already on the payroll.
!   Issuing and delivery of the check.
Payroll and Expense
!   Rates of pay and commission schemes.
!   Expense Reimbursement, overstated expenses
and Worker’s Comp.
!   Altered receipts
!   Multiple Reimbursements
Inventory and Other
Assets
!   Misuse of Inventory and other assets –Borrowed
or stolen.
!   Theft of Inventory and other assets
Corruption
!   Bribery
!   Economic Extortion
!   Illegal Gratuities
Conflicts of Interest
!   Purchases Schemes
!   Sales Schemes
!   Other Schemes
Fraudulent Statements
!   Fraud in Financial Statements
!   Generally Accepted Accounting Principles
!   Users of Financial Statements
!   Types of Financial Statements
!   The Sarbanes-Oxley Act or the Public Company
Accounting Reform Act. SOX was passed by Congress to
protect shareholders and the public from fraudulent
practices and to improve the accuracy of corporate
disclosures.
Fraudulent Financial
Statement Schemes
!   Fictitious Revenues
!   Timing Differences
!   Concealed Liabilities and Expenses
!   Improper Disclosures
Fraud Deterence
!   Hiring Well
!   Connections with Employees
!   Company-wide Ethics
!   Ethics Hotlines
!   More Ideas