Page 417 - JoFA_2022

FRAUD

5. TJ authorized a payment on a fake invoice a. TJ provided his brother’s address instead of
that he submitted to his employer, a retailer, his own.
for payment. The invoice was for a consulting b. TJ opened a bank account in his daugh-
service and provided all the appropriate ter’s name.
information for processing and payment, c. TJ created a business with his family’s initials.
including wiring information and contact d. TJ charged for a consulting service.
information. However, the bank account for
the wiring instructions was created in his
daughter’s name, and the company name is
the initials of his children and spouse. The
listed address for the company is his brother’s
house on the other side of town. What is most
likely the first red flag of TJ’s scheme that an
auditor would notice?
ANSWERS
1. (c) A business email compromise scam. Business 2. (a) The invoice only lists a post office box ad-
email compromise (BEC) scams are among the dress for contact. An invoice that offers a post office
costliest scams to which a company can fall victim. box as the only point of contact should be viewed
BEC scams often begin with the criminals conduct- suspiciously. A post office box can be a red flag of a
ing extensive background research and acquiring shell company because of the ease with which one
the names and email addresses of senior manage- can be acquired and the anonymity that it offers a
ment. Posing as a high-ranking executive or even fraudster. It also fulfills the need to provide an address
the business owner, a fraudster then contacts the to send payments to without indicating where one
employee in charge of billing to request a payment lives. Employees fraudulently billing their employers,
be sent. Fraudsters rely on the employee’s loyalty for example, might avoid having payments sent to
to the company and manufactured urgency to do addresses directly connected to themselves.
as requested by their superior without confirming The lack of additional contact information
the request through other means, such as a phone should be questioned. While many legitimate
call or a separate email to the known address of the businesses do use post office boxes, they will also
superior. Education and training are among the list other means of contact, such as phone numbers,
most effective ways to prevent a BEC scam from a website, an email address, and possibly a physical
deceiving employees. address for the company headquarters.
A fictitious vendor scheme is an internal billing Any information should be verified, especially if
scheme conducted by an employee in which the something appears off. The inclusion of this type of
employee creates a fraudulent invoice to be paid to a information is to be expected and therefore is not
vendor that does not exist. immediate cause for suspicion, even if the informa-
While a fictitious vendor provides an invoice tion shows the vendor is from out of state.
for goods or services not rendered, a passthrough Receiving an invoice from a former vendor with
scheme is one in which the employee purchases expired information is not immediately a red flag,
goods from a legitimate vendor, sells the goods to as it was once authenticated. An expired vendor
their employer at an increased price, and keeps the should be reauthenticated and purchase orders
profit. The transaction has passed from the original confirmed before any payments are resubmitted.
vendor, through the employee’s shell company, to
the employer. 3. (b) Joshua checks every invoice and bill against
Electronic payment tampering involves the the supporting documentation. If Joshua checks
manipulation of the organization’s outgoing elec- all payables against the proper documentation to
tronic payment mechanisms, such as an automated ensure the company is paying the correct vendors
clearinghouse, online bill payments, or wire transfers. the correct amounts, he can avoid falling victim to a
Dishonest employees with bank account access can scheme like Mickey’s.
log in and divert funds using these payment mecha- Mickey might believe that Joshua will authorize
nisms to their own accounts or their own means. payment on his personal credit card bill because he

14 | Journal of Accountancy October 2022