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Fraud in Accounts Payable: How to Prevent It

ISBN: 978-0-470-26045-6
200 pages
September 2008
Fraud in Accounts Payable: How to Prevent It (0470260459) cover image
Praise for Fraud in Accounts Payable

"Fraud in Accounts Payable is an insightful book that takes an in-depth look at the three most frequently committed fraudulent cash disbursement schemes directly related to your accounts payable function. Mary provides colorful and poignant stories showing how easy it can be to steal from both within and outside an organization. But the real beauty of this book is that Mary illustrates ways you can immediately begin implementing effective and efficient controls to reduce the opportunities for fraud within your organization."
—Matthew D. Storlie, CFE, Fraud & Forensic Services Virchow, Krause & Company, LLP

"Mary has delivered another book full of specific suggestions for improving accounts payable processes. Fraud in Accounts Payable is an easy-to-read guide that identifies real-world problems and offers practical solutions. Her books and articles have quickly become some of my core resources."
—Stephanie K. O'Cain, Chief Financial Officer Municipal Association of South Carolina

"Fraud could never take place in my accounts payable department."

"My employees would never steal from me! I trust them too much . . ."

Sound familiar?

The definitive resource for every accounts payable department, Fraud in Accounts Payable affords you a bird's-eye view of what's really going on in your accounts payable department and how you can defend it against every potential type of fraud, including check fraud, payroll fraud, and T&E fraud.

Written by Mary Schaeffer, America's most accomplished accounts payable expert, this thorough and highly readable guide is filled with authoritative tips, techniques, and advice on:

  • Uncovering hidden pockets of weakness where your organization is vulnerable

  • Getting rid of those bad practices that allow all sorts of frauds to flourish

  • Setting up antifraud safeguards

Reminding us to "never say never," Fraud in Accounts Payable explains in plain English how to protect your accounts payable department so it becomes—and stays—financially healthy.

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Preface.

Acknowledgments.

PART ONE: WHERE ACCOUNTS PAYABLE FRAUD CAN HAPPEN IN YOUR ORGANIZATION.

1. Profiles of Fraud in the Business World.

Three Big Myths.

Fraud Statistics.

Occupational Fraud: It's a Big Problem.

Definitions and Frequency.

Who Gets Hit the Hardest?

How Fraud Is Detected.

Who Commits Occupational Fraud?

To Prosecute or Not.

Is Fraud an Equal Opportunity Crime?

Fraud in the Eyes of the Beholder.

Effect of Status of Fraudster.

Big Boss Issue.

Why Do Insiders Steal?

Conditions that Permit Frauds to Occur.

Why Aren't More Fraudsters Prosecuted?

Fraud in the Real World.

Concluding Thoughts.

2. Check Fraud: Still a Huge Problem.

Internal Controls to Prevent Check Fraud by Insiders.

Recommended Controls.

What Else Can You Do?

How Bad Is the Check Fraud Problem?

What Does the Law Say?

Impact on Accounts Payable.

What Should You Do?

Positive Pay and Its Cousins.

Internal Controls, Segregation of Duties, and Positive Pay Exceptions.

Internal Controls and Paper Checks.

What Can Go Wrong.

Consequences of Poor Internal Check Production Processes.

The Right Way.

The Best Way.

Questions that Reveal Your Internal Check Controls.

Best Check-Handling Practices between Printing and Mailing.

Mailing Checks.

From Printing to Mailing: Do You Know Where Your Checks Are?

When the Checks Are Signed and Returned.

Wire Transfers.

Rebate and Refund Checks.

Rush Checks.

Why Returning Checks to Requisitioners Can Be a Problem.

How Companies Handle Check Return Requests by Requisitioners.

Fraud in the Real World.

Concluding Thoughts.

3. Check Stock: Stop the Fraudsters‚ ™ Presses.

Security Features in Your Check Stock.

What Else?

Some Check Fraud Security Features.

A Word about Void Pantographs.

Void Pantographs and Positive Pay.

Fraud in the Real World.

Concluding Thoughts.

4. P-Card: Not as Big an Issue as You Might Think.

Printing of the Invoice.

Start Off on the Right Foot.

Policy and Procedures Manual.

Spell Out Consequences.

Require Documentation.

Don‚ ™t Overlook Receipts.

Role of a Program Administrator in Fraud Prevention.

Approvals and Compliance.

Role of Limits with Respect to Fraud.

Train, Train, and Then Train Again.

What About Inappropriate Use?

Fraud in the Real World.

Closing Thoughts.

5. Electronic Payment Fraud: Not a Growth Industry‚ Yet!

ACH Blocks.

ACH Filters.

ACH Positive Pay.

Payment Account Data: Is It Accurate?

Ach Data Accuracy: Real-Life Solutions to a Very Practical Problem.

CPA‚ ™s Perspective.

Fraud in the Real World.

Closing Thoughts.

6. Desktop Fraud: Few Think About This‚ But Everyone Should.

Example.

Overview.

Issues.

Recommendation.

Lovallo‚ ™s Guidelines.

Bringing It All Together.

Fraud in the Real World.

Concluding Thoughts.

7. Travel and Entertainment Fraud: Not All Your Employees Are Honest.

The Book that Teaches Your Employees How to Steal.

Danger Signs.

Other T&E Scams.

Drawing a Line.

Latest T&E Issue: Verifying Boarding Passes Printed at Home.

Solutions to the Boarding Pass Issue.

T&E Fraud Prevention Best Practices.

Detecting Expense Reimbursement Fraud.

Uniform Enforcement of the T&E Policy.

What to Do When Expense Reimbursement Fraud Is Detected.

Last-Ditch Collection Efforts.

Fraud in the Real World.

Closing Thoughts.

8. Petty Cash Fraud: Petty Indeed.

Petty Cash Awful Practices.

How Much Money Should the Box Have?

Petty Cash Box.

Surprise Audits.

Where Does Responsibility for the Box Lie?

Do We Still Need Petty Cash?

Receipt Review.

Petty Cash versus T&E.

Fraud in the Real World.

Concluding Thoughts.

9. Vendor and Invoice Fraud: Not Every Invoice (Or Vendor!) Is Legit.

Fraudulent Invoices‚ or Not.

Solicitations that Look Like Invoices.

Other Common Invoice Frauds.

Fraud and Poor Payment Practices.

A Word about Collusion.

Brief Commentary on Purchasing.

Up-Front Vendor Verification.

Control Challenge in Real Life.

Advice from the Better Business Bureau.

Fraud in the Real World.

Concluding Thoughts.

10. Master Vendor File Fraud: How Employees Play Games with Your Records.

Some Really Bad Master Vendor File Practices.

Master Vendor File Reports.

Coding Standards Prevent Fraud.

Cleansing the Master Vendor File.

Who Has Responsibility for the Master Vendor File.

A New System.

Master Vendor File and Your Employees.

Fraud in the Real World.

Closing Thoughts.

11. Payroll Fraud: Ghostbusting and More.

Phantom Employees.

What You Can Do to Detect and Prevent Ghost Employees.

Falsified Hours and/or Salary.

What You Can Do to Detect and Prevent Employees from Falsifying Data.

Commission Schemes.

False Workers' Compensation Claims.

Some Overall Prevention Tactics.

Fraud in the Real World.

Concluding Thoughts.

12. Telecom Fraud: Yes, It Can Happen to You.

Types of Phone Fraud.

Nuisance Fraud.

Examples of Cramming.

Getting Refunds and Combating Cramming.

Slamming.

Phone System and Voice Mail Fraud.

Social Engineering Fraud.

Call Forwarding/Conferencing Problems.

VOIP Fraud.

Fraud in the Real World.

Concluding Thoughts.

PART TWO: STRATEGIES TO DETER, PREVENT, AND DETECT ALL SORTSOF ACCOUNTS PAYABLE FRAUD.

13. Best Practices‚ Not: Tactics that Unintentionally Promote Fraud.

Closing Thoughts.

14. Fraud Monitoring Reports: A Necessary Evil.

Automated Monitoring.

How Anyone Can Run Reports.

A Word about More Sophisticated Monitoring.

How Much Checking Is Enough?

The Big Report Everyone Should Run.

The Easy Report.

Other Fraud Detection Reports.

The ACT List.

Closing Thoughts.

15. Fraud Detection and Prevention: Simple Tactics You Can Use.

2006 Report to the Nation Fraud Detection.

PricewaterhouseCoopers 2007 Global Economic Crime Survey Fraud Detection.

Anonymous Hotlines.

What Companies Can Do to Prevent Fraud.

Simple Tactics to Make Sure No One Robs the Till on Your Watch.

Fraud in the Real World.

Closing Thoughts.

16. Sarbanes-Oxley.

Sarbanes-Oxley.

Overview of the Act.

Sarbanes-Oxley Survey.

Impact of the Act on Accounts Payable Operations.

Outside Influences.

Functions Improved.

T&E Reimbursement and Review Processes.

Internal Audit Reviews.

Backup for Check Requests.

Records Retention Policy.

1099 Reporting.

Invoices.

Master Vendor File.

Other Regulatory Concerns.

Using the Act to Enforce Needed Change.

The Act and Its Effects on Private Companies.

Whistle-Blower Protections.

The Anonymous Hotline.

Concluding Thoughts.

Appendix A: Fraud Schemes: Physical and Virtual Checks.

Appendix B: 2007 Top Frauds.

Appendix C: Segregation of Duties.

AppendixD: The Sarbanes-Oxley Act of 2002 Titles.

Resources.

Index.

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Mary S. Schaeffer is a nationally recognized accounts payable expert. She is the founder and Editorial Director of Accounts Payable Now & Tomorrow, a newsletter for professionals interested in payment issues. She is the author of twelve books and has written hundreds of articles that have appeared in publications such as the New York Times, Corporate Cashflow, Treasury & Risk, Business Credit, the Writer, Newsday, and newsweek.com. She has an MBA in finance and is a member of the New York Financial Writers' Association. She is a regular contributor to AICPA's Corporate Finance Insider publication.
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"The author has significant experience in this area and offers compelling best practices to detect and prevent fraud from occurring within your organization. This book goes a long way to get your organization thinking and acting to detect and prevent fraud." (Auditnet.org, October 2008)
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