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Through the use of computer technology and simple imagination, fraudsters find it increasingly easy to manipulate policies and defraud businesses. According to Jeffords, Thibadoux & Scheidt (1999), the risk of internal fraud can be minimized through time-honored controls such as segregation of duties, independent reconciliation of cash accounts, and safeguarding check stocks and signature protocols. (par. 5) the company does have policies in place such as check over $10,000 need to be approved and they are proceeded only the 15th and 30th of each month, which are good policies to prevent fraud but seems that they need extra supervision.
In the cash disbursement report obtained from the company, from 715 transactions, 9 of them were processed in different days that the 15th and the 30th of each month (Figure 1). Additionally, 5 transaction were over $10,000 which 2 did have approval from the CFO, 1 was not approve by the CFO but it was processed the 15th and 2 were neither between the correct dates to be processed and the CFO did not approve them (Figure 2). The voucher number 3988000 shows up 6 times with two different payee names, Hartford Brothers and Smooth Industries, which only Hartford Brothers do not have vendor number and some transactions are right in the limit to not need to be approved (Figure 1).
Seems like the CFO needs to make some changes in this policies, leaning more to the segregation of duties. What it seems to be happening is that someone from inside, that knows the policies and has the ability to processes checks, is creating fictitious invoices to key in the checks that are not following the policies and not being approved by CFO and steal the companys money. This transactions could not being caught because it may be a CFOs trusted employee or maybe the CFO does not have the time to approve and review every single transaction. A table showing some preventive controls is presented below (Table 1).
A list of approved vendors should be implemented, ensuring the data obtained from the vendors such as vendor number, address and phone number is legitimate. This list should be audited once a month as well as the cash disbarment report. According to the Association of Certified Fraud Examiners (2019), the primary means of preventing cash larceny is separation of duties. Whenever one individual has control over the entire accounting transaction (e.g., authorization, recording, and custody), the opportunity is present for cash fraud (p. 1332) therefore, the CFO needs to delegate to two different employees the processing of checks, one process them and the other one checks that all is following the policies and procedures to then be approved by the CFO. Any check that is not following the policies in place, does not get processed. If the CFO does not have the time to approve all of the transactions then he should delegate an assistant manager to approve the work of the other two employees but the CFO should over supervise the cash disbursement spreadsheets.
