Fraud risk increases when one employee controls finances

Fuller Landau team • September 23, 2015

Recent reports alleging that an accountant defrauded a Toronto-area company of more than $1 million highlight the risks of granting financial authority to one employee without sufficient oversight, says Toronto forensic accountant Patricia Harris.

As Global News reports, York Regional Police fraud officers have charged a woman suspected of defrauding her former employer of more than $1.2 million in August 2014, after providing false credentials to obtain an accounting position with a Vaughan-based company.

During her employment, says the article, police allege the woman wrote herself cheques from company accounts and used the funds to pay her bills and personal debts, allegedly using 13 different types of fraud to avoid detection.

As Harris, partner at Fuller Landau LLP explains: “Generally, someone will commit fraud when three things are present — known as the Fraud Triangle: Pressure (usually financial), opportunity (the employee is in a position of trust), and rationalization/ethics (for example, a willingness to commit fraud and the ability to justify it to oneself).”

In many cases of misappropriation of funds, she says, the person is in a position of trust and has authority to direct payments from the company coupled with a lack of sufficient oversight from the owners or supervisors of the company. In addition, he or she may have personal debt, feel underpaid and be able to rationalize taking funds from the company.

To help protect themselves against fraud, Harris suggests company owners oversee and review accounting reports in a timely manner, as well as segregate the duties of key employees — specifically, she says, companies should try to limit the authority of any one employee. “An employee who has control over cash and doesn’t take vacation is often a red flag that business owners should be aware of,” adds Harris.

“Ask yourself — could any one of my employees create a purchase order, process an invoice, authorize payment for the invoice, instruct a cheque to be prepared and sign the cheque? If so, your company may be particularly susceptible,” she says.

Often, when there is suspicion of fraud or when a whistleblower has stepped forward, the owner will call in a forensic accountant to figure out what is happening.

Also, she cautions, “It is always important for business owners to consult their legal counsel prior to any actions.”


This post was originally published in Advocate Daily, September 2015. Click to read


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