Question

In a Las Vegas casino, an employee discovered a flaw in the accounting system. The accounts payable clerk discovered that he was able to change the names of vendors in the computer system to his name. As a result, the employee could create false invoices and then cut a check for the false invoice. The name on the check would be changed to the name of the employee. After the check was printed, the name in the system could then be changed back to the appropriate vendor. The check register would show only the name of the vendor. The fraudulent employee had authorization to sign checks under $1,000. By writing small checks, the employee was able to defraud the company of $10,000. This fraud was caught by accident then the employee of another department was looking through the vendor list on her computer after the fraudulent employee had changed the vendor name to his name. A few entries later, the vendor name changed again. She wondered how this could occur and asked her supervisor. Soon after, the fraudulent employee was caught.
1. What kind of fraud is being committed?2. What percent of frauds are of this type?3. How could this fraud have been prevented?

Answer 1

Answer:

- This type of fraud is check tampering

- It amounts to 20.1% of fraud cases in small businesses, and 8.4% of fraud in large businesses

- This type of fraud can be prevented by rotating employees that handle check issuance to vendors, review of budget versus actual expenditure, monitoring of audit trail to see if beneficiary was changed, daily statement download for reconciliation, and restriction of functions for example a employee that issues checks should not also reconcile bank statement.

Explanation:

Check tampering is a very common fraud that involves changing the beneficiary of a valid check so that funds can be diverted.

In the given scenario the accounts payable clerk was able to change checks to his name in order to divert $10,000. This was only discovered by chance when an employee noticed the change in name.

Various internal control measures can be taken to prevent this and they are listed above