Fraud's Finer Points
Disbursements must be made to valid vendors for official business purposes, but fraudsters don't abide by this rule. Instead, they falsify supporting documents, never prepare them in the first place, or purposefully destroy them after creating and processing them. This column explores the actions fraud examiners must take when dealing with the most common way fraudsters will try to conceal their misdeeds - missing documents.
CRITICAL ATTRIBUTES OF DISBURSEMENT FRAUD
Fraud examiners can easily spot disbursement fraud by checking for falsified, missing, or destroyed documents. Managers should also be on the lookout for these same attributes when they suspect irregularities in the organization's disbursement system. Making sure all payments have been made to valid vendors for official business purposes is the standard we all must use to determine if the supporting documents for every disbursement transaction reviewed are really authentic.
Typically, missing documents are a red flag indicating disbursement fraud. But discovering them isn't as easy as it sounds. Auditors and fraud examiners either randomly or statistically select disbursement transactions for review. After selecting the transactions, they search the organization's storage files for the supporting documents. If the documents aren't on file, it's time to perform additional research to determine why they're missing.
When you ask staff members why the documents might be missing, they usually give two very common responses. They'll claim another employee has removed the documents for research or a special project, or they'll say an administrative staff member probably misfiled them. Regardless, the documents are still missing, and you need those documents to somehow complete the audit or investigation.
You might be tempted to select additional documents for testing and substitute them for the ones you couldn't find in the initial test. This would be a big mistake because you now have a failed audit test. The following case studies clearly illustrate this point.