Question

Case 1: An ex-employee of a company’s payable department was able to steal around $200K by filling fake invoices from his own dummy company. A forensic accounting team discovered that there were 12 fake invoices were submitted and paid by the ex-employee over the time frame of previous 1 year. Payments made of the fake invoices were paid first into account of his wife, after which they were transferred into his own account.

Keeping the Case 1 in view, it can be observed that the organization is lacking behind in structure and quality controls.

Required:

1. What can be done the future to prevent such activity in future? Explain by suggesting what internal controls should be set in place by the organization.

Answer 1

To prevent such activity in future, following suggestions under internal controls should be set-

1. Adequate controls, such as requiring a second person to authorise all changes to a vendor’s bank account, requiring adequate supporting documentation for all invoices.

2. Reviewing invoices and making further enquiries if any doubt is present. It will make it harder for the employee to submit false invoices or to alter the vendor’s bank account information.

3.Having adequate controls in place will make it harder for an employee to commit false invoicing frauds against their employees.

4. To make further enquiries into the legitimacy of the invoice before making payment (such as by checking if the company exists by phoning the contact telephone number listed.)

5. To check the validity of the GST number of the company with full details, like- name and address of the assessee with registered office etc.

Thanks & all the best.............