In one of the simplest thefts I’ve read about, a nonprofit administrative officer wired $6.9 million from an Ohio bank account to a private Austrian account. In this post, I’ll show you how wire transfer fraud occurs and how to prevent it.
The nonprofit administrator originated with the wire with a fax, taking less than an hour. Since the officer was authorized to make wire transfers, no one at the bank questioned the transaction–until it was too late.
The fraudster landed in Austria, called his wife and said, “I’m not coming home.” Interestingly, the wife called the police and turned in her husband. He later came back to the states of his own volition. I guess, after a few boat rides down the Danube, he missed his family. Did he go to jail? Yes.
The nonprofit entity did not establish appropriate controls over cash wire transfers. One person (by himself) could move funds.
The fix for this weakness is to require (at least) two persons to consummate all wire transfers.
As you think about wire transfers, consider that they can originate with:
Determine how your bank handles wire transfers, and craft your internal controls accordingly.
Organizations should do the following to mitigate wire transfer fraud:
If you’re an auditor, consider–as you audit cash–whether these controls are in place.
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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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