Considering the length of the presentations in this series of articles, you probably think that accounts receivable cases are the only kind of fraud I encounter in my work. It's not true, but I sure feel that way sometimes. Obviously, accounts receivables present a lucrative target for employees whose work isn't properly supervised and monitored by managers. The organization must be prepared to defend its treasury from attack by these unscrupulous individuals. This column discusses learning objectives from two types of on-book accounts receivable fraud schemes I've seen routinely in state and local government.
Eliminating Customer Accounts
In certain organizations, such as those that provide utility services, a dishonest employee in the accounts receivable function often disregards the debts of certain customers. These customers include the fraudster's own account or those of his relatives or other employees who are his friends. He may eliminate the accounts from the accounts receivable billing system or store the subsidiary ledger cards for those accounts in a separate file. In a utility, the customer books used by the meter readers are the original source documents that prove the universe of all existing accounts. To find out if the organization has the true universe of all accounts, fraud examiners must compare the total number of customer books to the total number of active accounts in the accounting system. (After a recent investigation, described in the first case study here, I added the word â€œactiveâ€ to the preceding sentence.) You must investigate any differences.