Question

What are the five major categories of fraudulent disbursements? Pick two of the categories and describe: a. How the fraudulent disbursement occurs, b. Three red flags associated with the fraudulent disbursement category: C. Three methods used by forensic accountants to detect the fraudulent disbursement.

Answer 1

Five major Categories of Fradulent disbursements – Pick any two and describe

1. Cash mishandling
2. Tempering with Cheque
3. False Invoicing
4. False payroll accounts
5. Unwanted relation with Vendors

Cash in hand is the most hot and popular among such employees who are into fraudulent disbursements.

Cash is easy to handle and except certain people , nobody is involved in it , until checked by an outsider or a Senior Team member.

A Cashier has to maintain his cash book , complete , regular and clear at any point of time. When a cashier is transparent in his activities, it is an indication of an adequate Internal Control System of the Organization. Physical cash and book cash must always tally with any vouchers to be recorded , if any found , unrecorded , for any reason. When there is no one checking the cash on daily basis, the cashier can misuse the cash for his personal use and may indulge into fraudulent disbursements. When there is checking due , he can misrepresent the expenditure by fake transactions.

Another critical area is the unwanted relation with the vendors.

Generally, there are vendors and customers in any organizations and they are into good relation with the staff of the organization but when it is unusual with any one special , then it needs attention. Celebrating parties , lunch, dinner with supplier is an indication that something might be cooking around and both the supplier and the employee are coming into the scope of verification. There might be suspicious activities of an employee , which are indicative of the arrangement for any fraudulent disbursements. Delaying the bills for payment , not recording the bills timely, raising unwanted queries compels the supplier to talk with the respective employee, personally , to settle the differences and have an arrangement of clear funds disbursement . In such an arrangements, the employee is quite eager on bills of a particular supplier and takes extra care to handle it , even if the due date is near or not.

How the Fraudulent disbursement occurs ?

Fraudulent disbursement occurs when an employee uses illegal means to misappropriate the official funds either in cash or bank for his personal use , without knowledge of the Owner or the boss .

Such an employee does it by tempering with the cash transactions , cheque books , payment from customers and payment to suppliers methodology .

Since he knows the weakness in the Internal Control system , he knows which areas are having loose control and he takes undue benefit of the trust of the bosses or the organization to do fraudulent transactions for his personal use.

It is definitely going to lead him into legal issues and termination of the service etc.

Three red flags associated with the fraudulent disbursement category ?

Red flags are the symptoms , which indicate towards fraudulent transactions.

These are

1. Living beyond means – When somebody is indulged into an expenditure , which is over and above his capacity of earnings, he is inclined to such illegal means or fraudulent disbursements , when he is an employee in oan organization.
2. Financial difficulties – When a person is into financial trouble due to medial issues, or some unexpected expenditures , while he is not having sufficient funds to handle it . he may go towards fraudulent disbursements.
3. Close association with a Vendor – Generally, an employee is not go beyond the limits for having association with a vendor. It the relationship is more than normal , there might be something cooking between both of them and it might lead to some fraudulent transactions.

Three methods used by forensic accountants to detect the fraudulent disbursements ?

1. Checking the abnormal cash transactions , when the transactions could be done with Cheque or more safe , online banking transactions. Such of abnormal cash transactions, now a days, are generally, avoided by any Organization and existence of heavy cash transactions always indicate about some bad practices and fraudulent transactions , where cash is being misused for fraudulent transactions which never exist and since there are many transactions , it is difficult for an auditor to check. Forensic accountants can find the fraudulent disbursements by unusual amount of cash handling.
2. Invoicing below approval parameters – Generally, there is an hierarchy in an organization for handling certain amounts at certain levels. Considering the materiality aspect, certain low amount Invoices are cleared without any specific checks and Employees know this weak area and they can play with this gap. Forensic accountants must look into these without approval Invoices , carefully and find out whether there any fraudulent disbursements.
3. Checking the Physical cash with Books – Generally , a cashier is making a daily statement for the physical cash with him , which is tallied with book cash and a statement is printed , checked and signed by all concerned . Forensic accountants must see whether the frequency of Cash verification is there or not . If the frequency is as high as once in a month or once in three months, there is possibility for the Cashier to play within this time zone and mishandle the cash operations and creating fraudulent disbursements.