In a recent post, we saw that John opens the mail and receipts checks made out to the City of Whoville. He was stealing cash by using the check-for-cash fraud scheme. That’s one way to steal.
But consider that converting company checks to cash—even without using a check-for-cash scheme—is possible.
In this post, I show you how fraudsters turn company checks into cash.
John can open a new bank account in the name of the city. Everyone in the community knows that John works in the city’s accounting department; so it appears perfectly normal for him to open a new bank account. John conveniently signs the signature card as the solely authorized signature. The name he uses for the bank account is Whoville Projects. So, the account name appears reasonable, and John has what he wants–a bank account for which he is the solely authorized signer.
John alone opens the mail. Now he steals checks made out to the city and deposits them into the Whoville Projects bank account (the new account is never set up in the city’s general ledger). Then John writes checks from his fraudulent bank account to anyone he chooses–including himself. (Rita Crundwell used an off-the-books checking account to steal $53 million dollars.)
Many companies incorrectly believe that fraudulent bank accounts can’t be opened in their name, especially if they are incorporated. Why? Because most banks ask for copies of company corporate documents. But consider that fraudsters can open a “doing business as” bank account in the name of ABC Company. Since the bank account is a personal (and not a corporate) bank account, the bank will not ask for corporate documentation.
Also, fake corporate documents can be created, if Susie wants to go the route of opening the bank account in the name of ABC Company, Inc.
The fundamental weakness is John opens the mail and receipts the checks by himself. Also, this type of theft often occurs when no one is comparing revenues to budget or prior period amounts. A lack of security cameras allows John’s thefts to go undetected.
Two people should be present when the mail is opened and receipted. Another alternative is to use a lockbox; that way, all checks go directly to the city’s bank rather than to the city.
The city should install security cameras and record all activity.
Periodically request a list of all accounts from the bank. Then see if each account is set up in the city’s general ledger.
Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty-five years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention, The Why and How of Auditing, Audit Risk Assessment Made Easy, and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles consults with other CPA firms, assisting them with auditing and accounting issues.