I thought that we should look at purchasing fraud, which covers purchases made by employees on company credit card or company account. The risk here is that the items are purchased for personal use, rather than to benefit your organisation.
The fraudster gains access to the company account or credit card. They may be an authorised user of the account or card; they may forge a signature, steal a card, have a false one made, or add their name to the list of authorised users when cards are ordered.
Generally, this type of purchase does not require a purchase voucher, order or prior approval, for example, replenishing office supplies.
Once the purchase is made, it must be concealed, or the fraudster will be caught!
Very often the fraudster is also the person who approves accounts for payment. When the accounts come in, they simply approve the purchase and no one is the wiser.
If they are not the approver, the fraudster must conceal the purchase another way. Possibly the approving manager does not pay much attention to what they are signing, and non-genuine items are not picked up. This is somewhat risky, but the risk is reduced if the fraudster sticks to making a genuine purchase but keeps part of it for themselves (for example consumables for a worksite), or purchases services which are hard to prove have not been received.
Another method of concealment is to deal with the account directly. If the fraudster is in a suitable position they can code the purchases as being genuine business items, or code it to another cost centre or expense account before getting approval for payment. Alternatively, they can alter the statement so that the fraudulent purchase does not appear as a separate item, or destroy accounts as they are received (although eventually the supplier will complain about not being paid).
Purchase fraud can affect any business where items are purchased on account or on company credit cards, particularly if there are no checks in place for good and services purchased.
Certain types of businesses can be more at risk than others, such as those in the building and construction industry where equipment and goods are purchased on company accounts and delivered to a worksite, possibly without ever being checked against an invoice, or in businesses with regionally based employees such as salespeople, who are allowed to purchase supplies locally.
Mostly, purchases from suppliers go through an initiation, approval, order, receipt, approval and payment cycle, with each stage acting as a filter to prevent fraudulent purchases.
However, direct employee purchases on account or by company credit card are missing the first four possible control steps, because the one person initiates and orders the goods and receives them.
Particular attention must be paid to reviewing, approving and paying direct accounts and company credit card invoices, and systems and processes will need to be reviewed to ensure adequate segregation of duties, document cross-checking procedures, and frequency of senior management auditing. These should be integrated with other control processes, and should be fully documented with all staff made aware of the correct procedures.
The difficult thing for many businesses is both knowing what to do to upgrade systems, and implementing changes without causing embarrassment to staff. Most vital of all is that procedures are actually followed and are reviewed on a regular basis, preferably by an objective professional who may turn up some holes in your process or identify areas of risk you may not have seen.