The Perfect Crime. Embezzlers often try to cover up by removing canceled checks theymade payable to themselves or endorsed on the back with their own names. Missing canceled checks are a signal (red flag). However, people who reconcile bank accounts may notnotice missing checks if the bank reconciliation is performed using only the numerical listing printed in the bank statement. Now consider the case of truncated bank statements forwhich the bank does not even return the canceled checks to the payer. All of the checks are“missing,” and the person performing the bank reconciliation has no opportunity to noticeanything about canceled checks. Consider the following story of a real embezzlement.The embezzler hired a print shop to print a private stock of Ajax Company checks in thecompany’s numerical sequence. In his job as an accounts payable clerk, he intercepted legitimate checks written by the accounts payable department and signed by the Ajax treasurerand then destroyed them. He substituted the same-numbered check from the private stock,made it payable to himself in the same amount as the legitimate check, and “signed” it witha rubber stamp that looked enough like the Ajax Company treasurer’s signature to fool thepaying bank. He deposited the money in his own bank account.The bank statement reconciler (a different person) was able to agree the check numbersand amounts listed in the cleared items in the bank statement to the recorded cash disbursement (check number and amount) and thus did not notice the trick. The embezzler was ableto process the vendor’s “past due” notice and next month statement with complete documentation, enabling the Ajax treasurer to sign another check the next month paying both thepast due balance and current charges. The embezzler was careful to scatter the double-expensepayments among numerous accounts (telephone, office supplies, inventory, etc.) so the doublepaid expenses did not distort accounts very much. As time passed, the embezzler was able torecommend budget figures that allowed a large enough budget so his double-paid expensesin various categories did not often pop up as large variances from the budget.Required:List and explain the ways and means you believe someone might detect this fraud scheme.Think first about the ordinary everyday control procedures. Then think about extensivedetection efforts assuming a tip or indication of a possible fraud has been received. Is this a“perfect crime”?
The Perfect Crime. Embezzlers often try to cover up by removing canceled checks they
made payable to themselves or endorsed on the back with their own names. Missing canceled checks are a signal (red flag). However, people who reconcile bank accounts may not
notice missing checks if the bank reconciliation is performed using only the numerical listing printed in the bank statement. Now consider the case of truncated bank statements for
which the bank does not even return the canceled checks to the payer. All of the checks are
“missing,” and the person performing the bank reconciliation has no opportunity to notice
anything about canceled checks. Consider the following story of a real embezzlement.
The embezzler hired a print shop to print a private stock of Ajax Company checks in the
company’s numerical sequence. In his job as an accounts payable clerk, he intercepted legitimate checks written by the accounts payable department and signed by the Ajax treasurer
and then destroyed them. He substituted the same-numbered check from the private stock,
made it payable to himself in the same amount as the legitimate check, and “signed” it with
a rubber stamp that looked enough like the Ajax Company treasurer’s signature to fool the
paying bank. He deposited the money in his own bank account.
The bank statement reconciler (a different person) was able to agree the check numbers
and amounts listed in the cleared items in the bank statement to the recorded cash disbursement (check number and amount) and thus did not notice the trick. The embezzler was able
to process the vendor’s “past due” notice and next month statement with complete documentation, enabling the Ajax treasurer to sign another check the next month paying both the
past due balance and current charges. The embezzler was careful to scatter the double-expense
payments among numerous accounts (telephone, office supplies, inventory, etc.) so the doublepaid expenses did not distort accounts very much. As time passed, the embezzler was able to
recommend budget figures that allowed a large enough budget so his double-paid expenses
in various categories did not often pop up as large variances from the budget.
Required:
List and explain the ways and means you believe someone might detect this fraud scheme.
Think first about the ordinary everyday control procedures. Then think about extensive
detection efforts assuming a tip or indication of a possible fraud has been received. Is this a
“perfect crime”?
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