Fake Services, Fake Invoices: Learn From a Recent Embezzling Conspiracy

A Clark County employee was recently indicted on 15 counts of conspiracy to commit wire fraud from an insurance company over a four-year period. As a Certified Fraud Examiner (CFE) and CPA, the case caught my attention as one that possibly could have been prevented had the insurance company had the proper internal controls in place.  The county employee acted as a private investigator and was hired by the co-conspirator, the insurance company’s attorney, to perform investigations that were never done. They are accused of embezzling thousands of dollars from the insurance company by setting up fraudulent invoices to a fake vender. Why did it take so long to discover these fraudulent activities and what can a business owner learn from this case of embezzlement conspiracy?

  • Segregation of duties.  In this case, one person, the attorney, authorized checks to send to vendors such as private investigators, though there was never any proof that the work had been done. One person should not be able to both approve and pay vendor invoices. If the payment is to a false vendor, there is ample opportunity for fraudulent payments to go on for years.
  • Need for oversight and audits.  Did the insurance company let their attorney know there would be surprise audits held from time to time? It might have made him think twice before scheming with the fake private investigator. Fear of getting caught is an effective fraud deterrent.
  • Perform a fraud checkup yearly. The embezzlement went on for four years in this case. During the time before the fraud was discovered, the insurance company may have not noticed the missing money. It may seem a strange way to look at your employees in a negative light, but if you expect the worst you may catch the problem before it’s too late.
  • Look for warning signs. Personal problems or changes in behavior are red flags for fraud.  Did the attorney suddenly seem flush with cash? Buying new big ticket items or wearing expensive clothing? These are signs to watch out for in your employees, especially if it’s a new behavior.

If it took four years for this insurance company to detect a problem, could there be some small fraudulent act occurring today in your company? Don’t wait for it to snowball to a major conspiracy. Contact a CFE today to perform a fraud checkup on your business.

Mike Rosten, CPA, CFE is a Principal with Piercy Bowler Taylor & Kern CPAs. For more information on forensic accounting, visit www.pbtk.com.

Source: http://www.lvrj.com/news/pair-indicted-in-embezzling-conspiracy-140973043.html

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