Frauds of the month

Knowledge of the methods used to perpetrate frauds will help you identify them or atleast flag them on time. This way you can improve Governance.
These are some of the creative frauds uncovered during the month of October. Obviously no names are disclosed due to confidentiality. However, fraudsters should not benefit due to this restriction.
* Factoring fraud – the manager from the factoring company intentionally gets bogus invoices from clients and discounts them with the company. Tha manager retains a commission for the fraud(or gets paid separately) and pays the balance to the client. One of two things will happen later. Those fraudulent invoices may be replaced later with new ones or they will not be recovered and be defaulted, causing a loss to the Company.
* Payment fraud – the accountant draws cheques on the pretext of settling creditors and encashes them because they’re not crossed. Or else due to their authority level change the name of the payee.
* Procurement fraud- this normally takes place in construction companies, but others also use this technique. whilst purchasing items for the company, they buy extras or deliver an excess quantity to their personal business or house. If inventory systems do not record daily movements it is very difficult to detect such practices. When company employees have their own businesses, internal audit should be more vigilant.
* Leasing company fraud – normally for a lease contract there is an advance payment. Manager collects the advance but does not deposit it in the company. He rolls that cash. However, the customer’s instalment gets adjusted as it’s treated as a contract without a deposit. The manager will monthly deposit the difference in value of the instalment into the account and ensure that the company does not send the correct statement to the customers.


About surenraj

“Views expressed are my own”
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2 Responses to Frauds of the month

  1. ameer says:

    On procurement fraud- wouldn’t it be captured with the 3 way matching system of PO Invoice and GRN.

  2. surenraj says:

    The inventory system must record each transaction and there should be segregation of duties for the 3 way match to be effective. If there is no PO and if the same person who perpetrates the fraud also checks the GRN then the control is not effective. The fraudulent environments will avoid GRNs!

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