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Accounts payable frauds
‘TH.INv L-IKE A THIEF - THE IMPOSSIBLE HAPPENS!
When some of the UK Banks read Leslie Goldberg's article 'Think .Like a Thief' they said, "it could never happen", "it's not possible", "go away", "there are much better methods", and a host of other excuses and explanations, attempting to divert attention away from what common sense says was and is a big exposure. Bob Jacobson reported the same reaction from US banks and when Time was researching its article on the Bulletin and Goldberg's prize winning effort banks told them "impossible".
As predicted.
. .
We were not claiming that Goldberg's was the best possible method; nor were we saying it was the only way of defrauding banks. It was a likely method, which sooner or later would be exploited. As things turn out, it was sooner rather than later, for while Goldberg's article was being written, cases exactly as he had predicted were taking place. The first involved transfer of funds - protected by Test Key 'Authenticators' - from the Central Bank of Nigeria for 21 million dollars to New York with instructions to transmit further to Barclays Orange County, California then to Lloyds Bank, California and finally to an account in the Bahamas.
Astute employee
The second transfer was for 34.9 million Swiss francs from Liberia to the USA and the third from Kampala to London. All of the transactions were covered by a valid test key and on the face of things appeared to be genuine. A senior bank employee involved with the Bahamas/Nigeria scam said, "The attempts were foiled but it was pure dumb luck." The same will undoubtedly happen again: will the banks be so lucky next time?
LMnb Zl.&zk
FISHY
The fraud was detected by an astute bank employee in California, who became suspicious when a man called into his branch, opened an account with a ES0 deposit and told the employee to expect a wire transfer of El9 million within the next few days! The transaction was traced back down the chain and found to be false. No money changed hands: except for the ES0 deposit which the criminal has not asked to be returned.
CHIPS
John Jackson, the owner of the Uyno Electronics Store of Sunnyvale, California has been arrested on suspicion of receiving $40 000 worth of stolen circuits and chips found by an anonymous tip off. Experts, who examined the parts, identified them as 'cosmetic rejects': these are working chips that have a minor defect in appearance. Manufacturers normally hang on to such parts and recycle them to recover their precious metal content. Traffic in 'cosmetic rejects' and in other stolen computer parts and peripherals is becoming a problem. Operators, who own their own hobby computers, seem to have few qualms about upgrading their personal equipment at their employer's expense. Similarly there are no inbuilt ethical restrictions on writing personal computer idea what we're writing", said one programmer.
ACCOUNTS FRAUDS
PAYABLE
Life for victims of fraud is seldom easy: if you choose not to proSecute, you can still find your way into the courts. Try to avoid publicity and your name may still be splashed across the
papers. In the UK, with the recent Employment Protection Acts, it is not always enough that you find an employee with his hand jammed in the till: if you dismiss him unfairly, even in these circumstances, you can still be in trouble and may have to pay him compensation or worse still re-engage him. There can be other problems .even if you take action against the criminal. Injunction sought
On 24 May 1980, an Irish company, Roadstone Limited, made : application in the Dublin Bigh Court seeking an rnjunction restraining the Bank of Ireland from paying E6000 to a Roadstone employee whom the company believed had stolen more than El00 000. The employee - Patrick Conlon - worked in Roadstone's accounts department and is alleged to have siphoned off vast sums, much of which is deposited with the Bank of Ireland, by manipulating the accounts payable records. Roadstone, not unreasonably some people may think, was anxious to ensure that no further monies were paid to Conlon until a full investigation had been completed.
LittZe impact
Conversion
easy
The alleged fraud seems simple: cheques were drawn in favour of people who were not genuine suppliers of the company and payments to some genuine accounts were inflated. Presumably the refunds were misappropriated. Such frauds would have little impact in a large company providing the embezzler chose the accounts in which the losses were concealed carefully. Accounts payable systems are exposed to fraud (arguably the most exposed of all) and particularly so when a computer is involved. Once the original data are keyed in to the computer there is no human intervention until the point when the fraud has an impact on inflated costs or budgets. If the criminal keeps his fraud within limits and chooses the cost headings carefully, there is little chance of detection. Conversion in accounts payable systems is usually easy. At Birmingham Crown Court in June 1980, a 34 year old Office Manageress - Valerie Savage - was convicted of defrauding her employers J S Wright and Co of Birmingham of 86000. The fraud was basic. She would have cheques drawn.to a company 'JIB' Limited and then signed by the appropriate manager. After signature (and this is a big error) the cheques were returned to her and she altered the payee from JIB to J I Brown. Sometime earlier she had opened an account with a local bank in the name of Brown and she deposited the cheques in it. Mrs Savage admitted stealing E6530 by deception and to using the funds to buy a f500 diamond ring, a holiday and a new Ford Cortina car. She was sentenced to nine months imprisonment to run consecutively with an 18 month term she was already serving for defrauding her employer by another method, and was ordered to repay.
Weak points
It is often easy to see why companies became the victims of fraud; but the art is to identify weaknesses before the event and in advance of a criminal. Consider your own accounts payable system whether computer related or not. 1
Are disbursement cheques handed back to the people who have sought authority to have them drawn?
2
How are costs written back into company accounts and budgets? Do they go into small centres where they would be noticed or
into large company accounts in which the impacts of fraud could be readily concealed? 3
Chs@t
back
What cost headings are there in your nominal or general ledger which are poorly controlled or difficult to control? Look
particularly att
* * * * * * * * * * * * * *
advertising and sales promotion commissions adjustment, transfers and suspense general accounts repairs, maintenance and services intercompany accounts company's consumption accounts write offs account stationery small components accounts overseas or remote stocks freight and Customs duty taxation accounts bank charges and interest payable
Why not go through your nominal ledger listing today and identify and then check on loosely controlled accounts? Then check back to source documents and verify that you have not been defrauded. As a second step examine cancelled cheques (if necessary have them returned by the bank) and look for:
-
alterations to payee's name missing chegues endorsements.
It is better to make tests before anything happens.
BANK CONTESTS UNFAIR DISMISSAL CLAIM
The Employment Appeals Tribunal in Dublin convened on 21 May 1980 to hear the application of Dermot O'Doherty of Portmarnock that he had been unfairly dismissed from his job with the Northern Bank. Mr Ercus Stewart, Counsel for the Bank, outlined a series of frauds that could amount to more than E200 000, it is believed. One transaction alone cost the bank fZ22450 and involved the transfer of monies between accounts and the opening of false accounts for fictitious customers whose names had been taken from the local telephone directory. O'Doherty claimed that he had been dismissed unfairly, and although he had not challenged the bank's evidence before, he did not accept it now.
Nervousand upset
Irregularities were discovered by Inspectors in August 1979 and when challenged O'Doherty admitted that he had not been truthful with his head office. He was nervous and upset by the auditors' questioning and this no doubt influenced his decision to instruct subordinate staff to rewrite certain of the accounts and to destroy pages from the original ledger. One of the fictitious accounts was given an address that, on checking, turned out to be O'Doherty's parents' home. When challenged about this, his lawyer admitted that he had been "flummoxed and could not respond".
When some of the UK Banks read Leslie Goldberg's article 'Think .Like a Thief' they said, "it could never happen", "it's not possible", "go away", "there are much better methods", and a host of other excuses and explanations, attempting to divert attention away from what common sense says was and is a big exposure. Bob Jacobson reported the same reaction from US banks and when Time was researching its article on the Bulletin and Goldberg's prize winning effort banks told them "impossible".
As predicted.
. .
We were not claiming that Goldberg's was the best possible method; nor were we saying it was the only way of defrauding banks. It was a likely method, which sooner or later would be exploited. As things turn out, it was sooner rather than later, for while Goldberg's article was being written, cases exactly as he had predicted were taking place. The first involved transfer of funds - protected by Test Key 'Authenticators' - from the Central Bank of Nigeria for 21 million dollars to New York with instructions to transmit further to Barclays Orange County, California then to Lloyds Bank, California and finally to an account in the Bahamas.
Astute employee
The second transfer was for 34.9 million Swiss francs from Liberia to the USA and the third from Kampala to London. All of the transactions were covered by a valid test key and on the face of things appeared to be genuine. A senior bank employee involved with the Bahamas/Nigeria scam said, "The attempts were foiled but it was pure dumb luck." The same will undoubtedly happen again: will the banks be so lucky next time?
LMnb Zl.&zk
FISHY
The fraud was detected by an astute bank employee in California, who became suspicious when a man called into his branch, opened an account with a ES0 deposit and told the employee to expect a wire transfer of El9 million within the next few days! The transaction was traced back down the chain and found to be false. No money changed hands: except for the ES0 deposit which the criminal has not asked to be returned.
CHIPS
John Jackson, the owner of the Uyno Electronics Store of Sunnyvale, California has been arrested on suspicion of receiving $40 000 worth of stolen circuits and chips found by an anonymous tip off. Experts, who examined the parts, identified them as 'cosmetic rejects': these are working chips that have a minor defect in appearance. Manufacturers normally hang on to such parts and recycle them to recover their precious metal content. Traffic in 'cosmetic rejects' and in other stolen computer parts and peripherals is becoming a problem. Operators, who own their own hobby computers, seem to have few qualms about upgrading their personal equipment at their employer's expense. Similarly there are no inbuilt ethical restrictions on writing personal computer idea what we're writing", said one programmer.
ACCOUNTS FRAUDS
PAYABLE
Life for victims of fraud is seldom easy: if you choose not to proSecute, you can still find your way into the courts. Try to avoid publicity and your name may still be splashed across the
papers. In the UK, with the recent Employment Protection Acts, it is not always enough that you find an employee with his hand jammed in the till: if you dismiss him unfairly, even in these circumstances, you can still be in trouble and may have to pay him compensation or worse still re-engage him. There can be other problems .even if you take action against the criminal. Injunction sought
On 24 May 1980, an Irish company, Roadstone Limited, made : application in the Dublin Bigh Court seeking an rnjunction restraining the Bank of Ireland from paying E6000 to a Roadstone employee whom the company believed had stolen more than El00 000. The employee - Patrick Conlon - worked in Roadstone's accounts department and is alleged to have siphoned off vast sums, much of which is deposited with the Bank of Ireland, by manipulating the accounts payable records. Roadstone, not unreasonably some people may think, was anxious to ensure that no further monies were paid to Conlon until a full investigation had been completed.
LittZe impact
Conversion
easy
The alleged fraud seems simple: cheques were drawn in favour of people who were not genuine suppliers of the company and payments to some genuine accounts were inflated. Presumably the refunds were misappropriated. Such frauds would have little impact in a large company providing the embezzler chose the accounts in which the losses were concealed carefully. Accounts payable systems are exposed to fraud (arguably the most exposed of all) and particularly so when a computer is involved. Once the original data are keyed in to the computer there is no human intervention until the point when the fraud has an impact on inflated costs or budgets. If the criminal keeps his fraud within limits and chooses the cost headings carefully, there is little chance of detection. Conversion in accounts payable systems is usually easy. At Birmingham Crown Court in June 1980, a 34 year old Office Manageress - Valerie Savage - was convicted of defrauding her employers J S Wright and Co of Birmingham of 86000. The fraud was basic. She would have cheques drawn.to a company 'JIB' Limited and then signed by the appropriate manager. After signature (and this is a big error) the cheques were returned to her and she altered the payee from JIB to J I Brown. Sometime earlier she had opened an account with a local bank in the name of Brown and she deposited the cheques in it. Mrs Savage admitted stealing E6530 by deception and to using the funds to buy a f500 diamond ring, a holiday and a new Ford Cortina car. She was sentenced to nine months imprisonment to run consecutively with an 18 month term she was already serving for defrauding her employer by another method, and was ordered to repay.
Weak points
It is often easy to see why companies became the victims of fraud; but the art is to identify weaknesses before the event and in advance of a criminal. Consider your own accounts payable system whether computer related or not. 1
Are disbursement cheques handed back to the people who have sought authority to have them drawn?
2
How are costs written back into company accounts and budgets? Do they go into small centres where they would be noticed or
into large company accounts in which the impacts of fraud could be readily concealed? 3
Chs@t
back
What cost headings are there in your nominal or general ledger which are poorly controlled or difficult to control? Look
particularly att
* * * * * * * * * * * * * *
advertising and sales promotion commissions adjustment, transfers and suspense general accounts repairs, maintenance and services intercompany accounts company's consumption accounts write offs account stationery small components accounts overseas or remote stocks freight and Customs duty taxation accounts bank charges and interest payable
Why not go through your nominal ledger listing today and identify and then check on loosely controlled accounts? Then check back to source documents and verify that you have not been defrauded. As a second step examine cancelled cheques (if necessary have them returned by the bank) and look for:
-
alterations to payee's name missing chegues endorsements.
It is better to make tests before anything happens.
BANK CONTESTS UNFAIR DISMISSAL CLAIM
The Employment Appeals Tribunal in Dublin convened on 21 May 1980 to hear the application of Dermot O'Doherty of Portmarnock that he had been unfairly dismissed from his job with the Northern Bank. Mr Ercus Stewart, Counsel for the Bank, outlined a series of frauds that could amount to more than E200 000, it is believed. One transaction alone cost the bank fZ22450 and involved the transfer of monies between accounts and the opening of false accounts for fictitious customers whose names had been taken from the local telephone directory. O'Doherty claimed that he had been dismissed unfairly, and although he had not challenged the bank's evidence before, he did not accept it now.
Nervousand upset
Irregularities were discovered by Inspectors in August 1979 and when challenged O'Doherty admitted that he had not been truthful with his head office. He was nervous and upset by the auditors' questioning and this no doubt influenced his decision to instruct subordinate staff to rewrite certain of the accounts and to destroy pages from the original ledger. One of the fictitious accounts was given an address that, on checking, turned out to be O'Doherty's parents' home. When challenged about this, his lawyer admitted that he had been "flummoxed and could not respond".