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Fraudulent disbursements are the most common class of asset misappropriation. This type of disbursement occurs when an employee uses their position to brand payment for an inappropriate purpose. They are on-volume fraud schemes, which ways that money in the course of checks leaves the entity fraudulently, but is recorded on the books and leaves an inspect trail. In this way, entities can get victims of fraud, even when no cash is involved.Accounts payable disbursement fraud involves an employer issuing a payment based on invoices for fake appurtenances or services, inflated invoices or personal purchases. Examples include an employee creating a shell company and billing the employer for services not actually rendered, or an employee purchasing personal items on the employer's credit card or submitting a fraudulent invoice to the employer for payment.

Examples of disbursement misappropriation reported on by our Office include:

  • A District secretary used credit cards to misappropriate $118,871 over half dozen years.
  • A City clerk misappropriated $65,895 through unallowable purchases made by full general disbursement and credit cards over a year and a half.
  • A County public works employee misappropriated $1,786,232 over 10 years through payments fabricated to two simulated vendors.

Strong controls are the key to preventing or reducing the chance of fraud. In addition, it helps to watch out for these reddish flags:

  • Higher-than-usual costs
  • Excess appurtenances and services
  • Copies of documents rather than originals
  • Missing documents
  • Unusual vendors
  • Unusual changes in the behavior or lifestyle of employees
  • Unusual endorsements on the checks

While fraudulent disbursement is ane of the near mutual methods used to exploit employer resources, the related newspaper trail allows this type of fraud to be detected or prevented with proper procedures. Equally such, consider these monitoring controls:

  • Implement adequate segregation of duties or other compensating controls. For example, the person paying the bills should non be responsible for approving invoices or accepting shipments of goods.
  • Review vendor listings for unusual vendors or excessive payments to vendors.
  • Monitor voided transactions to ensure they are truly voids.
  • Review for transactions that seem unusual considering your operations.
  • Only pay original invoices, and ensure they are reasonable and make sense.
  • Ensure payments made exterior normal procedure are canonical, supported and for a public purpose. Examples of these types of payments include petty cash, credit cards, revolving accounts and advanced travel accounts.
  • Anytime something seems unusual, ask questions and ostend what was purchased with a third party, if necessary.

In add-on, consider performing these disbursement fraud tests:

  • Test for duplicate payments. Theft may occur if the aforementioned check is generated twice, and the 2nd one is stolen and converted to cash. To test, sort the full check annals by dollar amount and vendor proper noun. Same dollar payments with same vendor names above a sure threshold should be investigated.
  • Review the accounts payable vendor file for similar names. Fake vendor names may mimic existent vendor names, and home addresses or P.O. boxes may be used. Obtain a download of all vendor names, and sort the list by proper name to visually compare any vendors with similar names, and investigate any most matches.
  • Cheque for imitation vendors. A fake vendor may exist added with a abode address or P.O. Box. Pay shut attention to vendors that provide services rather than physical products, considering the latter get out audit trails, just the onetime are less likely to do and then. Obtain a download of new vendors' names and addresses for a period of time and look up the businesses to check for validity. If necessary, call the vendor.
  • Compare vendor and payroll addresses. Those with vendor setup power can create imitation vendors associated with their own home accost. If you compare all addresses in the vendor file with addresses in the payroll file, y'all may find a match. Sometimes the lucifer is legitimate, such equally travel checks existence candy through accounts payable. However, whatsoever suspicious matches should be investigated. To test, obtain a download of vendor names and addresses and payroll names and addresses. Merge the two files and sort the addresses to visually audit for matches.
  • Scan checks for proper signatures and payees. Fraudsters volition forge signatures or complete checks with improper payees, such every bit themselves. Choice a menstruum of time and obtain the related bank statements, then scan the checks for appropriate signatures and payees. Also consider scanning endorsements if available.

All organizations are susceptible to fraud; however, an entity tin help deter and reduce the opportunity for fraud. Management should set an ethical tone and establish solid internal controls. These two actions form the basis on which all other policies and procedures rest.

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