Tales from the Trenches: Five Examples of Fraud in Business

Thoughtware Alert Published: Nov 18, 2020
Closeup on mallet in a courtroom

According to the 2020 Report to the Nations, annual global losses due to fraud total more than $3.6 billion. Occupational fraud can be committed in various forms, including asset misappropriation, corruption, and financial statement fraud, just to name a few.

You may be asking yourself, “How does this happen? What drives individuals to commit such crimes?” To put this in perspective, we’ve asked several BKD forensics professionals to provide examples of fraud cases they’ve worked on personally. Here are some tales from the trenches.

Managing Consultant Sandon Vieth, CPA, CFE

"During an internal operations review at a manufacturing company in Texas, management discovered certain taxes owed were capitalized as inventory and amortized over the last year. Management determined the entries were likely made by, or at the direction of, the former controller. Therefore, an internal investigation was launched to determine the extent of the former controller’s actions. Management discovered questionable accounts receivable over 90 days, personal charges on a company credit card, and suspicious expense reimbursement reports.

We were brought in to further investigate the former controller’s actions. What we discovered was an “onion” of schemes in which we uncovered one scheme, pulled back the layer to reveal another scheme, and so on. Some of the schemes identified included:

  • Expense reimbursements supported by fictitious receipts or duplicate credit card statements
  • A voided $77,000 expense reimbursement check reissued to smaller checks under dual signature limits so the former controller could sign
  • Personal purchases on company credit cards
  • Credit and rebilling of accounts receivable balances over 90 days to ensure multiple bonus payments
  • Company-funded Dallas Cowboy’s season tickets and parking pass in the former controller’s name

This case highlights how the fraud scheme initially identified is often not the only fraud scheme occurring. Overall, there were almost $1 million in suspicious transactions/cash outflows identified and almost $4 million in bonuses paid and escrow released which likely would not have been paid or released but for the former controller’s actions."

Director Doug Manhart, CFE, CBAP®

About 10 years ago, we were called out to an aerospace company in the Northeast. The comptroller had gone on vacation, and his temporary replacement noticed some irregularities with several vendor payments in the preceding year. We did a fairly routine analysis of accounts payable and the active/inactive vendors. One thing that stood out was two vendors that had been paid consistently over several years, stopped being paid for two to three months, and started being paid again thereafter. The more recent payments felt out of the range of what we deemed typical in the prior years.

Luckily, the company kept physical copies of all vendor invoices. Once we dug them up, we noticed the more recent invoices had a different routing number than the older ones. There were also some other small differences but looked identical otherwise. We believed the newer ones to have been doctored. The interesting part was the routing number was not for a bank account associated with the comptroller but someone completely unrelated to the company and its vendors. After some more digging and investigating through social media, we identified the owner of the bank account to be a friend of the comptroller. She was a local woman with a small child.

After we completed the investigation, we had identified hundreds of thousands of dollars to this mystery woman. What we did not know is why this person was being paid these ill-gotten funds. Fortunately for us, we had another unrelated project with the client the following year. Out of curiosity, we asked what had come of the comptroller. It turns out that he had a child outside of his marriage with the mystery woman and was sending her money every two weeks via the fictitious vendor payments. 

This is a fraud tale as old as time. The comptroller worked late nights (creating the fake invoices) and rarely took time off. The company had poor controls on vendor management and failed to delete vendors once the services were complete.

Managing Consultant Lanny Morrow, EnCE®

Several customer accounts at a bank were compromised and wire transfers were sent out to hacker accounts in Houston, Texas, and IP addresses of spoofed emails were traced there as well. The initial focus was on an external breach incident, but analysis of bank account access evidence indicated an employee was accessing all the hacked accounts prior to the hacks.

The employee denied having any relatives, associates, etc., in Houston, but inspection of the computer found a deleted airline ticket confirmation for a trip to Houston not long prior to the hacks. Open source intelligence, such as people search and genealogy sites, revealed that parents and numerous relatives lived in the Houston area, and further computer searches revealed frequent visits there by the suspect.

The employee was placed on leave, and a criminal investigation was launched by law enforcement based on our findings. Since then, we’ve seen this pattern occur, something we’ve never before seen, where an internal actor colludes with outside parties to hack the employee’s own organization.

This story (1) highlights how internal employees can collude with outside hackers to commit a fraud and (2) underscores how open-source intelligence paired with digital forensics can supplement traditional investigation processes to enhance our analysis and outcome.

Managing Consultant Synetra Green, CPA, CFE

A bank found out one of its trust officers (“Subject”) was misusing her position and committing two different misappropriations of funds from trust accounts. 

The first misappropriation was found by a teller, who was suspicious about a check being deposited from a deceased trust customer. The trust customer’s account was managed by the Subject. Bank personnel further investigated the check and discovered more suspicious activity in the same trust account totaling approximately $184,000. The customer was unaware of the transactions. When asked about the misappropriation, the Subject stated, ‘I was carrying out the wishes of a dying man, and if I had to sacrifice my career, I am ok with that.’ The Subject was terminated in June 2020.

In August 2020, the bank was contacted about a payment made on the Subject’s account from another trust account managed by the Subject. The bank conducted another investigation for any similar activity. The investigation included analyzing checks from the Subject’s managed trust accounts. The Subject would request a check on a trust account and write the Subject’s account number on the check for payment to benefit the Subject. Also, the Subject had some checks payable to the Subject’s known associates or business. This misappropriation amounted to approximately $663,000. The Subject was able to perform this misuse because she was the only trust officer at her branch. Also, she requested checks to be sent back to her instead of being sent directly to the payee.

Director Julia Mast, CPA, CFE, ABV, CFF

I did an investigation on a small hospital where the accounting department was in charge of filling the ATM on site. For nearly nine years, the accounting manager had filled the ATM with $10 bills, keeping some for herself, and doctoring the paperwork. When we opened the ATM, there should have been nearly $500,000 inside, but there was $80. The fraud was only caught after the ATM malfunctioned and the new management had a hard time finding who could repair it.

Fraudsters are infinitely creative with their schemes, and detecting or preventing those schemes is a never-ending task. If you have a case involving some aspect of financial fraud, our certified fraud examiners, forensic accountants, certified computer forensics professionals, and consulting attorneys can help. For more information, reach out to your BKD Trusted Advisor™ or submit the Contact Us form below.

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