Where does Fraud Happen?

Annie Yoder | May 31st, 2012

When we speak to clients about fraud prevention, they’re often overwhelmed. They often think they can’t possibly be watching every part of their operations all the time. Fraud doesn’t occur equally in all parts of an organization’s operation and is often committed in the same ways: false invoicing, fake vendors and inappropriate employee expense reimbursements. By watching for easy-to-spot signs in each of these areas, organizations can go a long way towards preventing fraud.

False invoicing may involve creating a fake invoice and documenting a purchase where no service or product was exchanged. Many times, false invoices lack information.  Invoices exhibiting any of the following should be closely examined:

  • Missing street address (including a P.O. Box only)
  • Absent phone number
  • Lack of a good description of the products/services purchased
  • No logo
  • Omitted packing slip
  • Missing shipping destination
  • Sequential invoice numbers

False invoices often come from false vendors – ghost vendor accounts that are set up for the sole purpose of perpetrating fraud. To combat paying these ghost vendors, organizations should carefully monitor their vendor files. Best practices include:

  • Cleaning vendor files annually
  • Instituting a vendor approval process
  • Establishing a training program
  • Googling new vendor requests
  • Using IT controls to limit access to vendor files

Employee expense reimbursements are another area in organizations that at risk for fraud. When checking reimbursement requests look for these potential signs of fraud:

  • Lack of invoices
  • Fake invoices
  • Lack of detail on invoices
  • Wrong mileage
  • Personal expenses
  • Per diems without detailed receipts

All three frauds are often perpetrated through billing or payment schemes, with the goal being for organization funds to be transferred to the fraudster’s own accounts.

Contact our Fraud Prevention Specialists

Worried that your organization could be at risk for fraud through billing schemes? Want to improve your internal controls, but don’t know where to start? Contact Rea & Associates. Our audit team will help you to put the processes that you need in place. Our certified fraud examiners will identify processes that need improvement, helping you to enhance your fraud prevention and detection systems.

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