Opportunity and Pressure Risks for Fraud

Tuesday June 15, 2021 comments Tags: nonprofit, accounting, fraud, fraud risk, assessment, fraud triangle

Any accounting business and tax advice contained in this podcast is not intended as a thorough in depth analysis of specific issues. Nor is it a substitute for format information. Nor is it sufficient to avoid tax related penalties. If you have specific questions that you need advice for, be sure to schedule a strategy session and not solely rely on information in this podcast. All right, back to the episode. If your organization is wanting the link to the fraud risk assessment questions, check out the show notes. We will have a link for them there.

Hey, it's Chyla Graham, you're here for another episode of The Nonprofit Ace Podcast. This season has all been about fraud risk assessments. So the fraud risk assessment is you and the board asking yourself, how could fraud occur? Where are we susceptible to it occurring? So you're not just asking that question. Quite frankly, like just like that you're thinking through, okay, how do we train our staff? You're thinking about who has access to our money. You're thinking through where is there incentive or opportunity for fraud to occur.

This kicked off because season five, I did a whole set of episodes about crimes in the news and wanted to share those with you. And I have one that happened this year. So this is about a bookkeeper out in California. And one of the things when we talked through the early episodes of this season, I talked about the fraud risk assessment, the fraud triangle, and this is where the things overlay.

It's about the opportunity to commit fraud, the pressure to commit fraud and the ability to rationalize. So I cannot speak to all of this person's rationalization. So we're going to talk about about opportunity and the pressure. All right. And we'll dive into some possible rationalizations. So opportunity occurs when there is a lack of controls. So those no one's stopping something from happening. There's a lack of segregation of duties again, there's no one to catch, hey, this thing went wrong, how do we stop it? and there's too much trust.

So in this case, we have Janice Carlstrom, who is a bookkeeper and is charged with stealing more than a million dollars over the course of about five years. So we have, what's the opportunity, there's the bookkeeper, the bookkeeper is in a position of trust that this is one, she will issue checks. And so there is the opportunity, she had the opportunity to write checks. In this case, she was writing checks from her employers account, paying off personal credit cards, car loans, paying her son's loans. So what this means is there is no checks and balance, there is no one to say hi, I will actually sign those checks. So that instead of the bookkeeper just saying Okay, I will write the checks, and you can sign it, they have the ability to go ahead and complete that process.

So there was no segregation of duties. So think through that for your organization. Who is going to sign that check once it gets approved, or at least have a threshold. So if he's paying off personal credit cards, what does that look like? Another way this could have been stopped is by the bank reconciliation. I want to encourage you in your bank reconciliation process that someone reviews the bank reconciliation process, as they're reviewing for what checks have cleared, look at who those checks are written out to. You don't have to look at every single check. But do a quick scan to say, Hey, that looks weird. If your bank is giving you the check images, you can look at those really quick and just say, Do those names seem reasonable? If I google that name, what comes up?

This is a way that that opportunity would have been stopped because they were sent appropriate segregation of duties and internal controls. Now the pressure, as you hear, she's paying off personal credit cards, home loan, as well as her sons. This is someone who might be at the office talking about the hardship that their son is experiencing. Oh my gosh, he's out of work. He can't help me. She's at retirement age. You don't have to retire because you are at a retirement age. But is there a reason why she is? Is she working because she needs the money, which is another indication of our entire Retirement System. Is she working because she needs the cash to live or is she working because she loves her job?

There's some people will just enjoy the work that they're doing, she's also stealing money. So there could be another level to her enjoyment. But really think about, alright, we have people here who are working here because they cannot leave for financial reasons. I can't take the time to train a person, I have to do it, are they putting those types of barriers up? So those would be the opportunities that you might see the pressure, like I was saying was, she has this debt? So are there obligations that they have that they cannot step away from, they have to continue to pay that are going to incentivize? And then the piece that we don't know for sure, but we might want to think about for your organization, if you see someone who's in one of these places, they're older, and they have to work because they have obligations that need to be met.

They also have a lot of trust, and you never check their work to see hey, did this get done right? Who does that check right now to think about if they have reason to rationalize for this person? Was she there? How much is she making? If she has been there her entire career or most of her career, you might think okay, she should be making a decent amount of money. Decent is relative, but she's out in California. Should she be making 70,000? What is the going rate per area? Is she being paid appropriately for that work? What other duties was she expected to do? So is she being paid as a bookkeeper, but she's also closing out deals. So, what other additional duties are outside of the scope of her title is she actually performing that's going to make her say they owe me this money.

Also think she could have been a person who said, I'm actually gonna pay this back. I just needed to get through this hard period. And it's evolved, it turned instead of it just being a month or two, it's five years. And so think about people who need loans, wanted advances and have access to your actual cash and see if they are in a position where they could have rationalized saying how I'm gonna pay it back when I get my next check. So that's it.

I heard about this episode because of the Scam Goddess Podcast. So of course, I'm gonna put a link to their episode, because I found it to be quite funny. But definitely check out your organization and as you complete your fraud risk assessment, take the emotion out of what you feel for your contractors, what you feel for employees, even if it's us here at CNRG, really take the time to assess do they have access to too many things? So being sure to safeguard yourself, safeguard your resources and protect the reputation of the people that work with you. Alright, then have a good one. This has been another episode of The Nonprofit Ace Podcast. Until next season. Thanks for listening to another episode of The Nonprofit Ace Podcast.

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