"A unique forum to help managers and owners identify fraud and abuse in the workplace."
The Fraud Detectives

Are You Looking for Fraud Services?
Let Us Help You Locate a Professional
Let us know of your special needs.

Do You Offer Fraud Services?
Become a Select Consultant  
Become a Preferred Consultant

What is Fraud?
Fraud Tips

Useful Links
Test Your Fraud Knowledge
Search this Site

About Us
Who Are We?
Contact Us
Feedback Form

The Forensic Group LLC
1999 - 2005. All rights reserved.

Site Design and Maintenance
by Sandi Smith


Fraud Tales

Preventing Embezzlement -- Back to Basics.

As originally published in The FraudDETECTIVES Newsletter, August 30, 2000

What could a theft of $15,000 from the daily cash receipts at a NY area based retailer have in common with the $7.6 million allegedly stolen from The American Cancer Society by it's former chief administrative officer? For the answer, you don't have to look far.

Take the case of the retailer, a reseller of automotive products, who was victimized recently by an accounting clerk. This story began when a friend of a friend called me during the development of The FraudDETECTIVES' web site, requesting some advice for a fellow businessman. I was asked to speak directly to the firm's principal owner to see what needed to be done, and was told the bare details of how an accounting clerk, who handled the firm's cash receipts, may have been stealing funds. The principal's immediate request was for finding a CPA or similar professional who could advise the firm about what to do. We referred the company to Dave Rosenberg of Trien Rosenberg of Morristown, NJ and New York City. Dave is listed with us, as is Jay Trien, the managing partner of Trien Rosenberg, who is a Preferred Consultant Member (you can view Jay's Preferred Consultant page at: jtrien.shtml). Dave immediately contacted the owner and began advising the company on what to do to complete the investigation and also on what steps should be taken to prevent a recurrence.

As Dave tells it, the clerk, who was hired just nine months earlier, was responsible for posting payments against unpaid customer invoices. This was a wholesale business that also operated a retail storefront. Hence cash sales were common. The suspect clerk was responsible for tallying the day's cash receipts and preparing the daily bank deposit ticket. Allegedly, at this point the clerk was diverting cash from these deposits, and subsequently creating credit adjustments to customer accounts, hence clearing any open unpaid customer balances, which effectively covered up her crimes, until now.

It was by chance that our fraudster was tripped up. Apparently, all invoices and customer account adjustments and sales credits, as well as new sales orders, were printed on the one centralized office machine. A salesman, who had processed a sale for a customer earlier one day, noticed while waiting for another order to print, that a credit adjustment for this earlier customer order was being printed on the main office printer. He was sure that the sale was paid in full at the time of purchase, and that there were not any price adjustments or merchandise returns. As he stood by waiting for the accounting clerk to remove her own work from the printer, he made a mental note of the customer name. He then pulled the original order and the shop paperwork and confirmed for himself that something was amiss. Unsure as to why someone would subsequently adjust this fully paid-for customer order, he alerted the firm's principal, who wisely began an investigation. It didn't take long to realize just how easily the clerk had carried out her crimes.

According to Dave, had the firm installed some simple controls, such as preventing the same employee from having access to cash and also the ability to alter the accounting records, this theft could have been easily prevented.

In the case of the theft from The American Cancer Society, as reported by Robert Ruth and Encarnacion Pyle, in the August 24 edition of The Columbus Dispatch, a series of thefts were alleged to have been committed by Daniel S. Wiant, while employed by the society as its Chief Administrative Officer. This fraud, which now totals about $7.6 million according to court records, made national headlines some weeks ago when $6.9 million of this money was frozen in an Austrian bank shortly after being reported missing. The ease in which Wiant allegedly obtained the organization's funds for his own benefit, is in some ways as stunning as the amounts taken. Among other ruses, Wiant established several fictitious companies over a period of three years, to pilfer funds for his own use, including the leasing and purchasing of cars. One such fictitious company, called CPA Services, by Wiant, was used to set up payment for securing an apartment for an unnamed associate's use. The "CPA" apparently stood for Columbus Preferred Apartments, the recipient of the $10,334 used to pay for the apartment (so when is a CPA not a CPA?). An earlier Dispatch article had also disclosed that the 35 year old Wiant had prior convictions for fraud and credit-card theft.

So where was the oversight in the cancer society case? How could an organization vest so much authority in one person? Or was it a case of an internal control system that was operating on auto-pilot, relying too heavily on the form of support documentation, and too little on the substance or appropriateness of expenditures? Your guess is as good as mine. But smaller organizations (small being defined here as those organizations with under 100 employees), are more prone to this type of fraud, due in some part to the low probability of finding the formal internal controls structure typically found at larger organizations. Are not-for-profit organizations such as the society, just as vulnerable for similar reasons? Cost is obviously a big factor. But what about the cost of fraud? Perhaps they too can benefit from Dave's counsel on the need for better controls?