Preface xvii
Acknowledgments xxiii
Part One: Where Accounts Payable Fraud Can Happen in Your Organization 1
1 Profiles of Fraud in the Business World 3
Three Big Myths 4
Fraud Statistics 4
Occupational Fraud: It’s a Big Problem 5
Definitions and Frequency 5
Who Gets Hit the Hardest? 6
How Fraud Is Detected 7
Who Commits Occupational Fraud? 7
To Prosecute or Not 8
Is Fraud an Equal Opportunity Crime? 9
Fraud in the Eyes of the Beholder 9
Effect of Status of Fraudster 10
Big Boss Issue 11
Why Do Insiders Steal? 11
Conditions that Permit Frauds to Occur 12
Why Aren’t More Fraudsters Prosecuted? 13
Fraud in the Real World 13
Concluding Thoughts 14
2 Check Fraud: Still a Huge Problem 17
Internal Controls to Prevent Check Fraud by Insiders 17
Recommended Controls 19
What Else Can You Do? 20
How Bad Is the Check Fraud Problem? 20
What Does the Law Say? 21
Impact on Accounts Payable 22
What Should You Do? 22
Positive Pay and Its Cousins 23
Internal Controls, Segregation of Duties, and Positive Pay Exceptions 25
Internal Controls and Paper Checks 26
What Can Go Wrong 26
Consequences of Poor Internal Check Production Processes 27
The Right Way 27
The Best Way 29
Questions that Reveal Your Internal Check Controls 29
Best Check-Handling Practices between Printing and Mailing 30
Mailing Checks 30
From Printing to Mailing: Do You Know Where Your Checks Are? 31
When the Checks Are Signed and Returned 33
Wire Transfers 34
Rebate and Refund Checks 34
Rush Checks 34
Why Returning Checks to Requisitioners Can Be a Problem 35
How Companies Handle Check Return Requests by Requisitioners 36
Fraud in the Real World 38
Concluding Thoughts 41
3 Check Stock: Stop the Fraudsters’ Presses 43
Security Features in Your Check Stock 43
What Else? 45
Some Check Fraud Security Features 45
A Word about Void Pantographs 49
Void Pantographs and Positive Pay 49
Fraud in the Real World 50
Concluding Thoughts 50
4 P-Card: Not as Big an Issue as You Might Think 51
Printing of the Invoice 51
Start Off on the Right Foot 52
Policy and Procedures Manual 52
Spell Out Consequences 53
Require Documentation 54
Don’t Overlook Receipts 54
Role of a Program Administrator in Fraud Prevention 55
Approvals and Compliance 55
Role of Limits with Respect to Fraud 56
Train, Train, and Then Train Again 56
What About Inappropriate Use? 57
Fraud in the Real World 58
Closing Thoughts 59
5 Electronic Payment Fraud: Not a Growth Industry—Yet! 61
ACH Blocks 61
ACH Filters 62
ACH Positive Pay 63
Payment Account Data: Is It Accurate? 63
Ach Data Accuracy: Real-Life Solutions to a Very Practical Problem 65
CPA’s Perspective 68
Fraud in the Real World 70
Closing Thoughts 70
6 Desktop Fraud: Few Think About This—But Everyone Should 71
Example 71
Overview 72
Issues 73
Recommendation 74
Lovallo’s Guidelines 74
Bringing It All Together 76
Fraud in the Real World 77
Concluding Thoughts 78
7 Travel and Entertainment Fraud: Not All Your Employees Are Honest 79
The Book that Teaches Your Employees How to Steal 80
Danger Signs 80
Other T&E Scams 81
Drawing a Line 82
Latest T&E Issue: Verifying Boarding Passes Printed at Home 82
Solutions to the Boarding Pass Issue 83
T&E Fraud Prevention Best Practices 84
Detecting Expense Reimbursement Fraud 85
Uniform Enforcement of the T&E Policy 86
What to Do When Expense Reimbursement Fraud Is Detected 86
Last-Ditch Collection Efforts 87
Fraud in the Real World 88
Closing Thoughts 90
8 Petty Cash Fraud: Petty Indeed 93
Petty Cash Awful Practices 93
How Much Money Should the Box Have? 94
Petty Cash Box 95
Surprise Audits 96
Where Does Responsibility for the Box Lie? 96
Do We Still Need Petty Cash? 97
Receipt Review 97
Petty Cash versus T&E 98
Fraud in the Real World 98
Concluding Thoughts 99
9 Vendor and Invoice Fraud: Not Every Invoice (Or Vendor!) Is Legit 101
Fraudulent Invoices—or Not 102
Solicitations that Look Like Invoices 102
Other Common Invoice Frauds 103
Fraud and Poor Payment Practices 104
A Word about Collusion 106
Brief Commentary on Purchasing 106
Up-Front Vendor Verification 107
Control Challenge in Real Life 107
Advice from the Better Business Bureau 111
Fraud in the Real World 112
Concluding Thoughts 113
10 Master Vendor File Fraud: How Employees Play Games with Your Records 115
Some Really Bad Master Vendor File Practices 116
Master Vendor File Reports 116
Coding Standards Prevent Fraud 117
Cleansing the Master Vendor File 118
Who Has Responsibility for the Master Vendor File 119
A New System 120
Master Vendor File and Your Employees 121
Fraud in the Real World 121
Closing Thoughts 122
11 Payroll Fraud: Ghostbusting and More 123
Phantom Employees 123
What You Can Do to Detect and Prevent Ghost Employees 124
Falsified Hours and/or Salary 125
What You Can Do to Detect and Prevent Employees from Falsifying Data 126
Commission Schemes 127
False Workers’ Compensation Claims 128
Some Overall Prevention Tactics 129
Fraud in the Real World 130
Concluding Thoughts 131
12 Telecom Fraud: Yes, It Can Happen to You 133
Types of Phone Fraud 133
Nuisance Fraud 134
Examples of Cramming 134
Getting Refunds and Combating Cramming 135
Slamming 136
Phone System and Voice Mail Fraud 137
Social Engineering Fraud 138
Call Forwarding/Conferencing Problems 139
VOIP Fraud 140
Fraud in the Real World 141
Concluding Thoughts 142
Part Two: Strategies to Deter, Prevent, And Detect All Sorts of Accounts Payable Fraud 143
13 Best Practices—Not: Tactics that Unintentionally Promote Fraud 145
Closing Thoughts 147
14 Fraud Monitoring Reports: A Necessary Evil 149
Automated Monitoring 149
How Anyone Can Run Reports 150
A Word about More Sophisticated Monitoring 150
How Much Checking Is Enough? 151
The Big Report Everyone Should Run 152
The Easy Report 152
Other Fraud Detection Reports 153
The ACT List 159
Closing Thoughts 160
15 Fraud Detection and Prevention: Simple Tactics You Can Use 161
2006 Report to the Nation Fraud Detection 161
PricewaterhouseCoopers 2007 Global Economic Crime Survey Fraud Detection 162
Anonymous Hotlines 162
What Companies Can Do to Prevent Fraud 163
Simple Tactics to Make Sure No One Robs the Till on Your Watch 163
Fraud in the Real World 166
Closing Thoughts 167
16 Sarbanes-Oxley 169
Sarbanes-Oxley 169
Overview of the Act 170
Sarbanes-Oxley Survey 170
Impact of the Act on Accounts Payable Operations 171
Outside Influences 172
Functions Improved 172
T&E Reimbursement and Review Processes 173
Internal Audit Reviews 173
Backup for Check Requests 174
Records Retention Policy 174
1099 Reporting 174
Invoices 175
Master Vendor File 176
Other Regulatory Concerns 176
Using the Act to Enforce Needed Change 176
The Act and Its Effects on Private Companies 177
Whistle-Blower Protections 178
The Anonymous Hotline 178
Concluding Thoughts 179
Appendix A: Fraud Schemes: Physical and Virtual Checks 181
Appendix B: 2007 Top Frauds 183
Appendix C: Segregation of Duties 185
Appendix D: The Sarbanes-Oxley Act of 2002 Titles 187
Resources 191
Index 195
Mary S. Schaeffer is a nationally recognized accounts payable expert. She is the founder and Editorial Director of Accounts Payable Now & Tomorrow, a newsletter for professionals interested in payment issues. She is the author of twelve books and has written hundreds of articles that have appeared in publications such as the New York Times, Corporate Cashflow, Treasury & Risk, Business Credit, the Writer, Newsday, and newsweek.com. She has an MBA in finance and is a member of the New York Financial Writers' Association. She is a regular contributor to AICPA's Corporate Finance Insider publication.
"The author has significant experience in this area and offers compelling best practices to detect and prevent fraud from occurring within your organization. This book goes a long way to get your organization thinking and acting to detect and prevent fraud." (Auditnet.org, October 2008)
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