Splitting Payments to Circumvent Approval Requirements
Some fraudsters split payments to circumvent approval requirements. In this article, I show you how this type of theft works and what you can do to prevent it.
The Theft
The maintenance supervisor, Billy, wants to make a fraudulent payment to ABC Hardware for $9,900. (ABC Hardware is owned by his cousin.) So, Billy wants to avoid his company’s review process. He knows that all checks over $5,000 require the physical signature of the finance director. All checks below $5,000 are signed by the computer. What’s a boy to do? Well, Billy can split the transaction–two checks for $4,950 each. That will work.
Billy asks his cousin for two ABC Hardware invoices of $4,950 rather than the one for $9,900. Afterwards, Billy approves each invoice, and the payments are made.
So, Billy tries the scheme again, and it works. Then, he does so repeatedly. His cousin rewards him with free trips to South Dakota, his favorite hunting destination.
The Weakness
No one is querying the check register for payments just below the threshold. Also, bids were not obtained.
The Fix
Download the check register into Excel (or any database package). Then, sort the payments and look for repeated payments–just below the threshold of $5,000–to the same vendor.
Require bids for significant expenses, and retain the bids as support for the payments.
Difference in Bribes and Gratuities
Learning tip: The hunting trip is referred to as a gratuity rather than a bribe. Why? Bribes are inducement payments made before the purchase decision. Gratuities–free trips in this example–are given after the vendor payments. The purpose of the gratuity is to reward the complicit person (Billy). Then, in the future, Billy knows the drill and expects more of the same.
White-Collar Crime
Splitting payments is a form of white-collar crime. There are many ways that professionals steal. Click here for more fraud-related examples (some of which are hard to believe).
Related
