Not too long ago, requests for payment to a third party would have seemed highly unusual to customers. However, vendors in today’s credit-tight economy commonly accept third-party checks in payment of outstanding obligations. In this case, a request to pay a third party should have raised a red flag, but it didn’t.
When assets are missing, the cost can be enormous. Fraud examiners in retail or manufacturing businesses need to be particularly aware of inventory and purchasing controls. Auditors should test discrepancies, and if they find any, be prepared to investigate further. This case, presented by Patricia L. Jarrach, Esq., CFE, CICA, illustrates the necessity for every organization to review its inventory and purchasing controls regardless of the safeguards it has in place. The identification of red flags is imperative in any investigation and holds the key to detecting ongoing frauds. (The names have been changed for privacy reasons.) This case analysis will help budding fraud examiners – many who will land jobs in retail and manufacturing