It’s an unfortunate yet inevitable reality that some businesses will either dabble in or have to deal with fraud. Reports of accounting scandals, from family businesses to international corporations continue to make headlines. Worse yet, the trend shows no signs of slowing down.
Infamous institutions such as Lehman Brothers and outlaws such as Bernie Madoff have left unforgettable imprints on the minds of many. However, accounting scandals on a much smaller scale occur daily, some of which may occur within businesses in your own neighbourhood.
With that said, you can learn many lessons from these scandals, especially if you run a company or deal with financial statements regularly.
Funnelling $600,000 Out of a Business
Back in March 2018, a National Post article reported the case of an Ontario woman who funnelled over $600,000 of her employer’s money into a separate bank account. According to the report, she siphoned these funds into a charity for which she served as a board member. Police arrested the woman near her home in Maxwell, Ontario and charged her with fraud over $5,000 and faces a trial with additional pending charges.
Former Bookkeeper Siphons $200,000 from Company
Emily Joanne Montgomery of Surrey, B.C., 64, was charged with fraud and theft following accusations about her siphoning off over $200,000 from a garden supply company. She was also accused of stealing from other businesses by making unauthorized transfers and overpayments. The accusations came after a lengthy investigation which began in 2014 after company reps came forward with the allegations. Montgomery was arrested on March 6th, let out on bail and then returned to court on April 17th.
Fake Employees Created for Salary Increase
Christopher Banks, a former controller and accounts manager with Four Points by Sheraton Winnipeg South, pleaded guilty to one charge of fraud over $5,000. He cheated the company out of $134,000 during a five-year period by creating fictitious employee payroll to disguise the paychecks he was depositing into his own account. Banks effectively doubled his income. When confronted with the shortfall, he admitted to defrauding the hotel of $2,000, but further digging revealed a much deeper pit that almost ruined the hotel financially. This resulted in a recommended jail sentence of 18 months.
Former School Manager Defrauded University $176,000
In January 2017, 48 year-old Jeffrey Lederer was put on probation for defrauding the University of Waterloo at an amount of $176,000 (ordered to pay back full amount). He listed his mother-in-law, Pauline Von Rhedey, as a casual employee for whom he paid out $139,000 over several years. He also used a university credit card for personal use, spending $37,000. Lederer received an 18-month sentence and two years of probation.
Former Employee Defrauds Region of Halton out of $770,000
Nicolas Rewa, a former Public Works manager was accused of defrauding the Region of Halton out of $770,000 since 2008. He allegedly awarded contracts to Sirron Systems Inc., an automation company based in Hamilton. An investigation into his activities began after another employee was arrested in 2016. Rewa faces various charges including fraud over $5,000, municipal corruption and money laundering.
Woman Defrauds Regina Sexual Assault Center of $773,000
Debra Lynn House, 63, pleaded guilty of defrauding the Regina Sexual Assault Centre of $772,889. The plea came after the Regina Police Service received a tip that an unnamed female employee had stolen funds from the organization, prompting a seven-month investigation. House faces several charges including fraud over $5,000, theft over $5,000 and forging documents. Not only does she also face a three-year prison sentence, she has been ordered to pay back the full amount of the funds she stole.
Lessons to Learn from these Scandals
The underlying lesson to learn from all of these cases is that fraudsters almost always leave footprints. This serves as a reminder for employees to refrain from these activities. It’s also an encouragement for employers that there are solutions to uncover and halt accounting scandals before they grow out of control.
Beyond this key takeaway, there are lessons to learn in terms of criminal activities, how they appear and how you can deal with them.
Analytics Lessons to Learn from These Accounting Scandals
- Beware of funnel accounts – Fraudsters create these accounts in one region, which allows criminals in another region to withdraw from that account. There are numerous red flags for these funnel accounts. But some standouts to look for include multiple deposits shortly transferred to other accounts, deposits from multiple parties/sources and a high number of chargebacks.
- Stay on alert for falsified payments – One of the most common forms of employment fraud is the illegal transferring of funds into personal accounts. A method fraudsters use to accomplish this is to inflate invoice amounts, and then keep the inflated amounts for themselves.
- Lookout for payroll fraud – Payroll fraud, namely “ghost employees” involves the paying out of salaries to employees who don’t exist. Regular analysis and comparing payroll registers to checks can help you filter out non-existent employees.
- Beware of company card misuse – Inappropriate use of a business credit card is a frustrating yet fairly simple activity to detect. The main lesson is to keep strict rules and penalties in place, and monitor all transactions as much as possible.
- Acknowledge tip-offs and allegations – Employee trust is vital within any organization, but allegations of fraud or theft need to be taken seriously and investigated. Unfortunately, the most trusted employee is sometimes the person who engages in illegal activities.
How GLAnalytics Can Help
It often takes months, if not years, for a company to catch and detect fraud, and just as long (or longer) to recover from the losses. Many of the accounting scandals mentioned above are proof of this since the investigations into them occurred over lengthy periods of time. But the right technology can help identify potential fraud signs almost immediately.
GLAnalytics provides such a tool with its cloud-based software. The program relies on unique algorithms to detect the red flags of theft and fraud. These mainly center on numerical anomalies and can be used for payroll analysis, monitoring accounts payable/receivable and general journal entries.
GLAnalytics, along with basic monitoring practices, gives you a powerful tool for data integrity that can detect hidden errors. Ultimately, GLAnalytics provides reassurance that if human eyes miss fraud or theft, there is a digital safety net to ensure no such crime goes undetected.
