Fraud in Accounts Payable

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.

• Preface xviiAcknowledgments xxiiiPart One: Where Accounts Payable Fraud Can Happen in Your Organization 11 Profiles of Fraud in the Business World 3Three Big Myths 4Fraud Statistics 4Occupational Fraud: It’s a Big Problem 5Definitions and Frequency 5Who Gets Hit the Hardest? 6How Fraud Is Detected 7Who Commits Occupational Fraud? 7To Prosecute or Not 8Is Fraud an Equal Opportunity Crime? 9Fraud in the Eyes of the Beholder 9Effect of Status of Fraudster 10Big Boss Issue 11Why Do Insiders Steal? 11Conditions that Permit Frauds to Occur 12Why Aren’t More Fraudsters Prosecuted? 13Fraud in the Real World 13Concluding Thoughts 142 Check Fraud: Still a Huge Problem 17Internal Controls to Prevent Check Fraud by Insiders 17Recommended Controls 19What Else Can You Do? 20How Bad Is the Check Fraud Problem? 20What Does the Law Say? 21Impact on Accounts Payable 22What Should You Do? 22Positive Pay and Its Cousins 23Internal Controls, Segregation of Duties, and Positive Pay Exceptions 25Internal Controls and Paper Checks 26What Can Go Wrong 26Consequences of Poor Internal Check Production Processes 27The Right Way 27The Best Way 29Questions that Reveal Your Internal Check Controls 29Best Check-Handling Practices between Printing and Mailing 30Mailing Checks 30From Printing to Mailing: Do You Know Where Your Checks Are? 31When the Checks Are Signed and Returned 33Wire Transfers 34Rebate and Refund Checks 34Rush Checks 34Why Returning Checks to Requisitioners Can Be a Problem 35How Companies Handle Check Return Requests by Requisitioners 36Fraud in the Real World 38Concluding Thoughts 413 Check Stock: Stop the Fraudsters’ Presses 43Security Features in Your Check Stock 43What Else? 45Some Check Fraud Security Features 45A Word about Void Pantographs 49Void Pantographs and Positive Pay 49Fraud in the Real World 50Concluding Thoughts 504 P-Card: Not as Big an Issue as You Might Think 51Printing of the Invoice 51Start Off on the Right Foot 52Policy and Procedures Manual 52Spell Out Consequences 53Require Documentation 54Don’t Overlook Receipts 54Role of a Program Administrator in Fraud Prevention 55Approvals and Compliance 55Role of Limits with Respect to Fraud 56Train, Train, and Then Train Again 56What About Inappropriate Use? 57Fraud in the Real World 58Closing Thoughts 595 Electronic Payment Fraud: Not a Growth Industry—Yet! 61ACH Blocks 61ACH Filters 62ACH Positive Pay 63Payment Account Data: Is It Accurate? 63Ach Data Accuracy: Real-Life Solutions to a Very Practical Problem 65CPA’s Perspective 68Fraud in the Real World 70Closing Thoughts 706 Desktop Fraud: Few Think About This—But Everyone Should 71Example 71Overview 72Issues 73Recommendation 74Lovallo’s Guidelines 74Bringing It All Together 76Fraud in the Real World 77Concluding Thoughts 787 Travel and Entertainment Fraud: Not All Your Employees Are Honest 79The Book that Teaches Your Employees How to Steal 80Danger Signs 80Other T&E Scams 81Drawing a Line 82Latest T&E Issue: Verifying Boarding Passes Printed at Home 82Solutions to the Boarding Pass Issue 83T&E Fraud Prevention Best Practices 84Detecting Expense Reimbursement Fraud 85Uniform Enforcement of the T&E Policy 86What to Do When Expense Reimbursement Fraud Is Detected 86Last-Ditch Collection Efforts 87Fraud in the Real World 88Closing Thoughts 908 Petty Cash Fraud: Petty Indeed 93Petty Cash Awful Practices 93How Much Money Should the Box Have? 94Petty Cash Box 95Surprise Audits 96Where Does Responsibility for the Box Lie? 96Do We Still Need Petty Cash? 97Receipt Review 97Petty Cash versus T&E 98Fraud in the Real World 98Concluding Thoughts 999 Vendor and Invoice Fraud: Not Every Invoice (Or Vendor!) Is Legit 101Fraudulent Invoices—or Not 102Solicitations that Look Like Invoices 102Other Common Invoice Frauds 103Fraud and Poor Payment Practices 104A Word about Collusion 106Brief Commentary on Purchasing 106Up-Front Vendor Verification 107Control Challenge in Real Life 107Advice from the Better Business Bureau 111Fraud in the Real World 112Concluding Thoughts 11310 Master Vendor File Fraud: How Employees Play Games with Your Records 115Some Really Bad Master Vendor File Practices 116Master Vendor File Reports 116Coding Standards Prevent Fraud 117Cleansing the Master Vendor File 118Who Has Responsibility for the Master Vendor File 119A New System 120Master Vendor File and Your Employees 121Fraud in the Real World 121Closing Thoughts 12211 Payroll Fraud: Ghostbusting and More 123Phantom Employees 123What You Can Do to Detect and Prevent Ghost Employees 124Falsified Hours and/or Salary 125What You Can Do to Detect and Prevent Employees from Falsifying Data 126Commission Schemes 127False Workers’ Compensation Claims 128Some Overall Prevention Tactics 129Fraud in the Real World 130Concluding Thoughts 13112 Telecom Fraud: Yes, It Can Happen to You 133Types of Phone Fraud 133Nuisance Fraud 134Examples of Cramming 134Getting Refunds and Combating Cramming 135Slamming 136Phone System and Voice Mail Fraud 137Social Engineering Fraud 138Call Forwarding/Conferencing Problems 139VOIP Fraud 140Fraud in the Real World 141Concluding Thoughts 142Part Two: Strategies to Deter, Prevent, And Detect All Sorts of Accounts Payable Fraud 14313 Best Practices—Not: Tactics that Unintentionally Promote Fraud 145Closing Thoughts 14714 Fraud Monitoring Reports: A Necessary Evil 149Automated Monitoring 149How Anyone Can Run Reports 150A Word about More Sophisticated Monitoring 150How Much Checking Is Enough? 151The Big Report Everyone Should Run 152The Easy Report 152Other Fraud Detection Reports 153The ACT List 159Closing Thoughts 16015 Fraud Detection and Prevention: Simple Tactics You Can Use 1612006 Report to the Nation Fraud Detection 161PricewaterhouseCoopers 2007 Global Economic Crime Survey Fraud Detection 162Anonymous Hotlines 162What Companies Can Do to Prevent Fraud 163Simple Tactics to Make Sure No One Robs the Till on Your Watch 163Fraud in the Real World 166Closing Thoughts 16716 Sarbanes-Oxley 169Sarbanes-Oxley 169Overview of the Act 170Sarbanes-Oxley Survey 170Impact of the Act on Accounts Payable Operations 171Outside Influences 172Functions Improved 172T&E Reimbursement and Review Processes 173Internal Audit Reviews 173Backup for Check Requests 174Records Retention Policy 1741099 Reporting 174Invoices 175Master Vendor File 176Other Regulatory Concerns 176Using the Act to Enforce Needed Change 176The Act and Its Effects on Private Companies 177Whistle-Blower Protections 178The Anonymous Hotline 178Concluding Thoughts 179Appendix A: Fraud Schemes: Physical and Virtual Checks 181Appendix B: 2007 Top Frauds 183Appendix C: Segregation of Duties 185Appendix D: The Sarbanes-Oxley Act of 2002 Titles 187Resources 191Index 195

"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)