A federal grand jury has indicted a Fairfax County, Va., woman on charges of embezzling nearly half a million dollars over a six-year period from the landscaping and construction company for which she worked, The Washington Post reports. According to the indictment, the woman used her position within the company to add fake employees to the company’s payroll and then deposited the checks into her personal account. She also has been accused of using company credit cards for personal purchases.

Lessons Learned

Having written articles and books on the use of technology and data analysis to prevent and detect fraud, one might expect me to decry the use of traditional methods to do the same. Why should internal auditors use a manual method when they could electronically search through transactions? Sometimes, though, tried and true methods are just that. Auditors need to consider all the tools and techniques at their disposal. A combination of approaches may have identified this type of fraud much sooner.

In a small company — even one with several hundred employees — a simple but effective method of detecting fake employees is to allow internal audit to hand deliver paychecks and require employees to show appropriate identification and sign for their check. Requiring employees to sign for their paychecks can make it easier for auditors to identify fake employees. Another useful technique is reviewing the counter signatures to look for checks being cashed by someone other than the payee.

Using corporate credit cards to make personal purchases also can be identified through a simple manual review of credit card statements to match purchases to receipts. For larger companies, data analysis can quickly identify personal purchases by analyzing the merchant category code. Most credit card companies have standard reports that auditors can use to identify inappropriate, duplicate, and split purchases. Even small companies can access these reports, which allow auditors to review credit card transactions without special software.

I highly encourage auditors to develop the skills necessary to make effective use of data analysis techniques, but in situations where this is not feasible, it also is important to consider other techniques, including manual reviews and spot checks. The auditor’s toolbox should contain an assortment of tools, and the auditor should be able to use the right tool for the job.

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