The Association of Certified Fraud Examiners - Essay Example

 The Association of Certified Fraud Examiners Fraud occurs everywhere, some we see on the news and some we never hear about. This is an example of a fraud case where a large company had approximately 12 people committing embezzlement for approximately 6 years. Embezzlement, more professionally known as occupational fraud and abuse, is on the rise and very costly to corporations, insurance companies, and even taxpayers. The Association of Certified Fraud Examiners conducted a study in 1996 known as The Wells Report. The Wells Report concludes, "the average company loses about six percent of its gross revenues to all forms of occupational fraud and abuse.” The Association of Certified Fraud Examiners describes the elements of fraud as a triangle. The three legs of the triangle are opportunity, motivation, and rationalization. The company in question is a local one, and for purposes of the report, referred to as ABC Company. Reference to the employees is by their job titles to safeguard their identity. The company was an agency in San Antonio. It took inbound and outbound calls for several companies such as Southwestern Bell, Sears, Montgomery Wards, customers’ service call for credit card companies, and from the infomercials currently on TV. The company had a large turnover because the employees needed to meet quotas daily in order for them to receive their incentive pay. If the branch made the quota, the branch manager would get a weekly bonus. The company had two payroll departments, one for inbound employees and another for outbound employees. Some quick background on its outbound payroll department showed that ABC Company had a large payroll department that consisted of thirty people in 2000. It also paid out in 15 different locations, from San Antonio, Texas to Mobile, Alabama. The largest locations for the outbound payroll department were San Antonio and Universal City located in Texas. Some teams in the payroll department consisted of a minimum of two people a maximum of five. Each team reported to a supervisor, who would report to the assistant director, who in turn reported to the director of the department. Some employees were cross-trained so that in the absence of one employee, any other employee would cover the position. The cross-trained personnel held the positions below: 1. Data entry clerk – entered the information that came from HR into the timekeeper central database, which was Kronos for all company codes. 2. Verification specialist - verified data entered in the system and made sure all documents were in payroll files and set up correctly to reflect location and pay. This person entered all information into ADP for all company codes. 3. Payroll Clerk – responsible for checking hours from the branches and verifying with managers all the training hours added manually. They were also responsible for highlighting payroll discrepancies, adding time for vacation pay, holiday pay and incentive pay to the employees for the company code they had. The positions for which the personnel were not cross-trained were: 1. Payroll Specialist – responsible for making sure Kronos hours matched with the payroll clerk’s final report. They also cut manual checks needed for any discrepancies that the payroll clerk submitted. The supervisors signed off the final reports and manual checks to correct the discrepancies. They were also responsible for making termed employees inactive from the system. 2. Payroll Officer – each team had a payroll officer who reported to the supervisor and to the assistant director. The payroll officer’s responsibility was to review the reports that came from ADP after each payroll submission. These reports came with the live check from ADP. The report that they needed to review was the Audit report that showed a company, number of pays for the company, hours and money paid for that particular company code. The report needed to match the Kronos report that the payroll specialist used to transmit payroll. They also needed to review the change status report that shows all the changes from the ADP, for example, the address change, term to active or vice versa, pay change and name change. They were also responsible for making sure that the time clocks were in harmony with those in the departments and at any off site. 3. Supervisors –responsible for checking the accuracy of the payroll that came in and counting the checks against the sign sheet ensuring each check was accounted. If a check returned to the payroll department after the pay date, which was every Saturday, it proceeded to another department where it would pass through a check system for retrieval of information such as term date and last working hours. 4. Assistant Director and Director – did the bank transfers for each company code and took responsibility for the whole department. Two Payroll Clerks, a Payroll Specialist, a Payroll officer, and eight termed employees committed the fraud. They had worked for the company for periods ranging from three to seven years and commanded a lot of respect. They functioned as resource persons as other employees in the department would go to them for help. They were also responsible for training new employees whom came into the payroll department. The Payroll Officer made a deal with the company and the DA’s office for the information on the fraud. A narration of the fraud exposed details to the rest of the employees in the department to create awareness in order to avoid recurrence of the vice. The Payroll Officer took two working days to explain to rest of the staff how the fraud took place on a weekly basis. The sequence of events in the fraud took place as follows: 1. The members of staff implicated in the fraud invited friends to apply for jobs. Once hired, their names entered the system through HR and their information sent to the payroll department. The new employees then quit employment after a week or two. 2. The two payroll clerks would send out their reports to the branch managers, all information corrected, and they would add time under training codes for their friends who were no longer under employment. The loophole was that training codes never underwent scrutiny due to the high employee turnover rate. They would then delete those hours they put in Kronos before the week was closed. 3. The payroll specialist was in charge of making employees inactive in ADP to avoid issuance of check upon payroll submission. However, every week she would revert those particular termed employees to active so they could receive a check and term them again before the week closed. 4. The payroll Officer would pull the change reports out and shred them for their company code. After the supervisors confirm the checks, they would go to the payroll officer. The officer needed to seal them in envelopes and get them ready for dispatch to each location on Saturday. Prior to sealing, the Payroll officer would extract all the fraudulent checks that were about eight. 5. The eight people would then cash their checks and share the money with the person with whom they held an agreement. The Payroll clerks, payroll specialist, and the payroll officer each had two friends in the scheme. Discovery of the fraud came through a whistle blower who was not an employee of the company, but knew what was happening. ABC Company received a letter from an anonymous source, stating that her ex-boyfriend still received checks from the company in spite of having quit employment for over a year. It later turned out that the ex-boyfreind was the father of one of the data entry clerks working in the payroll department. The director looked in to the matter through Check View, which is a program in ADP. He confirmed that indeed, the person was receiving checks. The director summoned all the employees in the payroll department for interrogation. Fearing repercussions, some of the employees quit their jobs on the spot. In two weeks, the whole department fell. Everyone else had to put in more effort to cover for the department, in the largest location, that wallowed in devastation and disorganization. Ghost employees represent an area in the payroll that does not raise concern. While these individuals perform no work, their time cards/sheets/lists are prepared to obtain payroll checks with fraudulent intent. Such a fraud requires careful planning and execution to avoid arousing suspicion. A common understanding must exist between colluding employees if the process is to proceed successfully. Read More