Where is Fraud Likely? – Part 7: “Closed” Accounts

Lawrence R. Beebe, CPA

In this series, we are discussing specific areas where fraud might be likely to occur within an organization and the steps management can take to detect and prevent fraud.

The Auditor Can’t Find What Isn’t on the Books

Anytime a fraud occurs, someone is bound to ask “where were the auditors?”  Many times the auditor should have suspected or caught the fraud.  There are circumstances, however, where it is almost impossible to find the fraudulent conduct.  One of those times is when the transaction is never shown on the entity’s books.

Assume that a company has a bank account that is no longer useful and the company president tells Joe to close the account.  Joe does not close the account, but uses the account to deposit checks made payable to the company.  He deposits checks that he does not think the company will miss, such as refund checks or checks for sales of equipment.  Since Joe has signature authority on that account, he makes checks payable to himself and no one is the wiser.

Always confirm with the bank that accounts which are supposed to be closed are actually closed.

Previous Posts in this Series

Where is Fraud Likely? – Part 1: Almost Anywhere

Where is Fraud Likely? – Part 2: Accounts Receivable Lapping

Where is Fraud Likely? – Part 3: Kiting

Where is Fraud Likely? – Part 4: Falsifying Credit Card Charges

Where is Fraud Likely? – Part 5: Petty Cash

Where is Fraud Likely? – Part 6: Falsified Receipts

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