Guide to Preventing Workplace Fraud - Chubb Group of Insurance ...

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software, and color laser printers to produce numerous counterfeit checks purportedly issued by the company. Counterfeit checks may not necessarily resemble the company’s, but they can look legitimate enough to be cashed and initially processed through the banking system. These checks have the company bank account and bank routing information imprinted on them so, at least initially, the checks will be debited to the company’s account. By the time the checks are discovered to be counterfeit, the perpetrators are typically long gone. Here are steps to consider for mitigating exposure to check artist fraud: ■ Consult with a commercial banker regarding security features and use them in your company’s checks. ■ Be aware of red flags. For example, counterfeit checks typically do not have micro-encoded features. ■ Closely monitor and reconcile your company’s bank balance. Report all discrepancies and issues to the bank, both to alert the bank and to protect the company’s legal rights and remedies. ■ Examine cancelled checks for indications of alterations, duplicates, or counterfeits. ■ Consider the use of “positive pay” or “reverse positive pay” procedures. Accounts Receivable/Incoming Payment Processing Frauds naturally take place “where the money is.” In many companies, that’s the accounts receivable or remittance processing unit—the place where payments flow into an organization. 34
Remittances Jonathan, a long-term employee in ABC Company’s accounting department, was responsible for opening the incoming company mail and processing all remittances received on customer accounts. Jonathan was also responsible for responding to customer account balance inquiries, adjusting customer accounts for billing errors and other mistakes, and collecting and writing off problem accounts. What opportunities did Jonathan have for defrauding his employer? • Diversion of payments—Jonathan diverted some of the checks paid to the company by depositing them into a personally controlled bank account he had established in a name that was similar to the company name. • Write-offs—Jonathan covered up some of his fraudulent activity by falsely portraying customer accounts as uncollectible and by writing off outstanding balances in those accounts. He did this so that all checks subsequently received on the written-off accounts could be diverted without arousing suspicion. • Lapping—Jonathan also engaged in “lapping” payments—e.g., a payment made on one customer’s account (Account A) is applied to another customer’s account (Account B), where payments had previously been diverted. In other words, payment on Account A is used to make up for an existing shortage in Account B. As a result, Account B is now in balance, but Account A is not. Future payments on other accounts will need to be applied to Account A to hide this diversion. Jonathan used this practice repeatedly to keep accounts in an ostensibly “current” status. • Unexpected payments—When payments were occasionally received on accounts that had been written off as uncollectible, Jonathan diverted those payments as well. These payments were not expected and thus never missed by the company. The above scenario illustrates a lack of segregation of duties. The employee had control of both receiving and recording incoming customer remittances, as well as the authority to apply payments to customer accounts and to make account write-offs. 35
Page 1 and 2: Guide to Preventing Workplace Fraud
Page 3: GUIDE TO PREVENTING WORKPLACE FRAUD
Page 7: CONTENTS Introduction .............
Page 10 and 11: focus on prevention, detection, and
Page 12 and 13: The Fraud Triangle What motivates p
Page 14 and 15: ■ Minimization: “I’m not taki
Page 16 and 17: Cash-diversion schemes range from s
Page 18 and 19: FRAUD RISK MANAGEMENT- LOSS CONTROL
Page 20 and 21: General fraud detection practices.
Page 22 and 23: ■ “Vendor audits,” which typi
Page 24 and 25: company. Checks with identified inc
Page 26 and 27: ■ Investigate Forms W-2 and 1099,
Page 28 and 29: Segregation of duties may be diffic
Page 30 and 31: In many companies, vendor payments
Page 32 and 33: ■ “Vendor audits,” which typi
Page 34 and 35: The above scenario presents a numbe
Page 36 and 37: part of computerized records and ar
Page 40 and 41: Misappropriation of Waste, Scrap, a
Page 42 and 43: Expense Account Reimbursement Fraud
Page 44 and 45: Payroll fraud may involve collusion
Page 46 and 47: ■ Employee correspondence sent to
Page 48 and 49: ■ Design and implement safeguards
Page 50 and 51: ■ Foster a strong “perception o
Page 52 and 53: Many companies require that employe
Page 54 and 55: ■ Callers are asked to call back
Page 56 and 57: ABOUT THIS BOOKLET This booklet was
Page 60: Chubb Group of Insurance Companies

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