Company loses $4 million in accounts payable fraud scheme: Lessons learned

Accounts payable fraud happens at companies of all types and sizes, so it’s important to put checks and balances in place to avoid these issues. One small company learned that the hard way.

After the company’s co-owner died, its comptroller was put in sole charge of the finances, according to Frank Rudewicz, a forensics accounting expert, in an article from The Patriot Ledger.

While before this happened, she was a high-performing, trusted employee, things quickly went south once she was promoted.

Uncovering accounts payable fraud

Five years after she received her new duties, the comptroller resigned abruptly. Soon after, the company’s internal audit manager performed a routine audit of A/P and found several unexplained transactions with no supporting documentation.

The internal audit manager reached out to the former comptroller for clarification and got no response. So, she went to her CFO and CEO, and they authorized a forensic review to get to the root of the issue.

Forensic reviews go beyond just reviewing records and the general ledger, which means they can get costly. They examine computers for deleted files and internet history, and can even involve physically tailing someone to find out clues as to whether their actions are related to missing funds.

The results of the review were staggering: Files on her company machine and physical evidence proved the comptroller had started her own local clothing boutique – and was using fraudulent company card transactions and stolen checks to fund it.

In all, the former comptroller had embezzled over $4 million from the company.

Preventing future issues

The company put several procedures in place to prevent this type of accounts payable fraud from ever happening again, such as reviewing all cash receipts and disbursements monthly to check for fraudulent activity, only disbursing cash after management approval (with dual approvals for certain amounts), saving backups of all financial transactions to multiple locations and regularly evaluating risks present in internal Finance controls.

And, perhaps most importantly: The company separated its financial responsibilities so no one person handles them all alone anymore.

Companies can learn from this tale and make sure they have the controls in place to keep this kind of fraudulent activity from happening in their A/P departments. Performing regular self-audits in A/P can help you safeguard your company’s finances from accounts payable fraud.