Stealing Unaccrued Receivable Checks is Easy

By Charles Hall | Asset Misappropriation

Dec 11

Stealing Unaccrued Receivable Checks

Some fraudsters steal unaccrued receivable checks and convert them to cash. In this article, I explain the mechanics of the theft and how you can prevent it.

The Theft of Checks Not Accrued

Susan is an hospital executive that has the authority to approve purchases of medical devices. She commonly receives rebate checks from vendors. Since she negotiates the purchase contracts, the vendors mail the rebate checks to her. Some of these checks are north of $50,000.

A while back she received a rebate check and placed it in her top left-hand drawer, thinking she would take it to accounting the next day. But she forgot.

Stealing unaccrued receivable checks

A month later she opened her drawer, and there it was. Oops! She hurriedly took the check to the receipting department and said, “Gosh, I must be losing my mind.” They all laughed, knowing it was an innocent mistake. But in the course of these events, she realized that no one knew she had the check. Why would they? Susan approves the purchases, and she provides the rebate information to no one. So, the rebates are not accrued in the general ledger.

Not long thereafter, Susan decides to retain two of the rebate checks totaling over $100,000. She places them in the same left-hand drawer, but this time, she does so on purpose. And then she waits—several weeks. No one calls about the checks. It’s obvious that no one knows she has them.

Susan converts the checks to cash by depositing them into a new bank account that she has opened in the name of the hospital. She is the sole authorized signer for the new bank account.

Now, let’s see what the control weaknesses are and how we can remedy this problem. 

The Control Weakness 

The weakness is that no one is tracking or accruing the rebate checks.

The Fix 

How can we cure this weakness?

Determine what companies provide rebates checks (and any other checks commonly received and not accrued). Send confirmations to the paying parties and compare the confirmed amounts with activity in the general ledger.

A master list of rebate companies should be maintained by someone in accounting, and the related activity should be monitored by comparing receipting information to this list. When possible, accrue rebate receivables.

White-Collar Crime

This is one more example of white-collar crime. Click here for many more articles about theft. For a detailed article about auditing receivables, click here.


About the Author

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.

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  • Jamiu says:

    Thank you Charles for sharing your experience on unaccrued receivables. I quite agree that it’s the unknown that bites the business. Auditors need to continuously review engagement risk assessment from time to time.

  • Charles Hall says:

    Jim, I too spent years auditing healthcare entities and have witnessed the same thing. That’s primarily where the idea for this post came from. And those rebates can be sizable over time. It’s the unmonitored money that is stolen.

  • Jim Bennett says:

    Charles, I audit some health related entities, and this is huge in that area – especially in pharmaceuticals. There are all kinds of rebates, and the dollars are huge. Management and governing entities really need to be aware of this and compile a list of rebates that they should get, and follow up periodically. You won’t know the amount, but once a quarter you should follow up to see what has been received.

  • Charles Hall says:

    Jim, it’s the unknown that bites businesses. Once rebates are identified, they can be tracked.

  • Jim says:

    I’ve found that in the health care arena there are more and more rebates. Rebates from pharma companies, rebates from insurance companies, etc. Calls for new controls, just as Charles writes. What rebates should we be getting?

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