ANATOMY OF A FRAUD - case studies Identify the missing control system from the following scenarios 2 Angela Bauer was an accounts payable clerk for Aggasiz Construction Company. Angela prepared and issued checks to vendors and reconciled bank statements. She perpetrated a fraud in this way: She wrote checks for costs that the company had not actually incurred (e.g., fake taxes). A supervisor then approved and signed the checks. Before issuing the check, though, Angela would "white-out" the payee line on the check and change it to personal accounts that she controlled. She was able to conceal the theft because she also reconciled the bank account. That is, nobody else ever saw that the checks had been altered. Total fraud amount: $570,000. Find the missing control from the following list: * Establishment of responsibility Segregation of duties Documentation procedures Physical control independent internal verification Human resource controls 29 Maureen Frugali was a training supervisor for claims processing at Colossal Healthcare. As a standard part of the claims-processing training program, Maureen created fictitious claims for use by trainees. These fictitious claims were then sent to the accounts payable department. After the training claims had been processed, she was to notify accounts payable of all fictitious claims, so that they would not be paid. However, she did not inform accounts payable about every fictitious claim. She created some fictitious claims for entities that she controlled (that is, she would receive the payment), and she let accounts payable pay her. Total fraud amount: $11 million. Find the missing control from the following list: * Establishment of responsibility Segregation of duties Documentation procedures Physical control independent internal verification Human resource controls 25 To support their reimbursement requests for travel costs incurred, employees at Mod Fashions Corporation's design center were required to submit receipts. The receipts could include the detailed bill provided for a meal, the credit card receipt provided when the credit card payment is made, or a copy of the employee's monthly credit card bill that listed the item. A number of the designers who frequently traveled together came up with a fraud scheme: They submitted claims for the same expenses. For example, if they had a meal together that cost $200, one person submitted the detailed meal bill, another submitted the credit card receipt, and a third submitted a monthly credit card bill showing the meal as a line item. Thus, all three received a $200 reimbursement. Total fraud amount: $75,000. Find the missing control from the following list: * Establishment of responsibility Segregation of duties Documentation procedures Physical control independent internal verification Human resource controls 25 At Centerstone Health, a large insurance company, the mailroom each day received insurance applications from prospective customers. Mailroom employees scanned the applications into electronic documents before the applications were processed. Once the applications were scanned, they could be accessed online by authorized employees. Insurance agents at Centerstone Health earn commissions based upon successful applications. The sales agent's name is listed on the application. However, roughly 15% of the applications are from customers who did not work with a sales agent. Two friends, Alex, an employee in recordkeeping, and Parviz, a sales agent- thought up a way to perpetrate a fraud. Alex identified scanned applications that did not list a sales agent. After business hours, he entered the mailroom and found the hardcopy applications that did not show a sales agent. He wrote in Parviz's name as the sales agent and then rescanned the application for processing. Parviz received the commission, which the friends then split. Total fraud amount: $240,000. Find the missing control from the following list: * Establishment of responsibility Segregation of duties Documentation procedures Physical control independent internal verification Human resource controls 25 Lawrence Fairbanks, the assistant vice-chancellor of communications at Aesop University, was allowed to make purchases of under $2,500 for his department without external approval. Unfortunately, he also sometimes bought items for himself, such as expensive antiques and other collectibles. How did he do it? He replaced the vendor invoices he received with fake vendor invoices that he created. The fake invoices had descriptions that were more consistent with communications department purchases. He submitted these fake invoices to the accounting department as the basis for their journal entries and to the accounts payable department as the basis for payment. Total fraud amount: $475,000. Find the missing control from the following list: * Establishment of responsibility Segregation of duties O Documentation procedures Physical control independent internal verification Human resource controls 2 Bobbi Jean Donnelly, the office manager for Mod Fashions Corporation's design center, was responsible for preparing the design center budget and reviewing expense reports submitted by design center employees. Her desire to upgrade her wardrobe got the better of her, and she enacted a fraud that involved filing expense-reimbursement requests for her own personal clothing purchases. She was able to conceal the fraud because she was responsible for reviewing all expense reports, including her own. In addition, she sometimes was given ultimate responsibility for signing off on the expense reports when her boss was too busy. Also, because she controlled the budget, when she submitted her expenses, she coded them to budget items that she knew were running under budget, so that they would not catch anyone's attention. Total fraud amount: $275,000. Find the missing control from the following list: * Establishment of responsibility Segregation of duties Documentation procedures Physical control independent internal verification Human resource controls