Today I show you how bookkeepers can make fraudulent payments without being on the signature card.
Auditors often focus on authorized check signers when considering who can fraudulently disburse funds. But might it be possible to make payments without being on the bank’s signature card? The answer is yes.
Here are a few ways to disburse funds without being on a signature card:
Since banks don’t usually inspect checks as they clear, a forged check will normally clear the bank.
Again, since banks don’t normally inspect checks as they are processed, an unsigned check can clear the bank. (I saw one just last month.)
Many times–at the client’s direction–banks wire money with just one person’s approval. One nonprofit administrator stole $6.9 million in less than an hour because of this control weakness.
I have also seen small-town business bookkeepers drop by a local bank and ask them to wire money. Banks, desiring to help their client, sometimes do.
Businesses should use the controls offered by banks. Otherwise, they might be on the hook for fraudulent wires.
Anyone with the right passwords can make electronic bill payments to themselves or anyone else.
This one scares me the most.
Many businesses, in an effort to expedite the disbursement process, have authorized signatures embedded in the payables software, enabling the payables clerk to make a payment to anyone. If the payables clerk has access to check stock (and they usually do), watch out. Even if a second person is normally involved in processing checks with automatic signatures, how easy is it for the clerk to go by in the evenings and make fraudulent payments? This danger increases if the payables clerk also reconciles the bank account. Why? No second person is reviewing the cleared checks.
I cringe every time I see a signature stamp. Why not just ask the authorized signer to just sign plenty of blank checks? (Yes, I am being facetious.)
Just last year I worked on a case where the bookkeeper wrote manual checks to herself but entered payments in the general ledger to legitimate vendors for the same amounts. Why? To mask the payments.
Give anyone (1) the ability to sign checks, (2) access to blank check stock, and (3) the ability to make the bookkeeping entry, and you have the recipe for theft–particularly if that same person reconciles the bank statement or if the person reconciling the bank statement does not examine the payee on cleared checks. If you can’t segregate duties (there are too few employees), here’s how to lessen segregation of duties problems in two easy steps.
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Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.
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