Invoice for Your Approval…

Joan M. Renner, CPA, CGMA, Director 501(c)(fit!)

In last week’s FIT! TIP, we talked about how Rita Crundwell, the comptroller and treasurer of Dixon, IL managed to steal more than $53 million over a period of 22 years.  Until her arrest in 2012, she ran a championship horse breeding operation with expensive trucks and a rock star motorhome. 

How did she do it?  Fake Invoices.  Controlling all aspects of the city’s finances, Crundwell set up a secret bank account for a sewer fund.  She created false invoices from a real vendor, the State of Illinois, and paid them with city checks made out to “Treasurer”, and deposited the checks into her sewer fund account, which she controlled.  Another employee discovered the secret account while Crundwell was away on an extended vacation.  She is now serving a 19-year prison sentence.

Next time you’re asked to approve an invoice, remember that fake invoice schemes are among the most frequent ways perpetrators steal from nonprofits.*     

Take this Washington, DC association for example.  In November 2013, Ephonia Green, a former administrative assistant at the Association of American Medical Colleges, pleaded guilty to embezzling more than $5 million from her association over a 9-year period.  Until her arrest, she lived in a mansion and drove a fancy car.  She was sentenced to 16 months in prison.    

How did she do it?  Fake invoices.  Green’s duties included processing vendor invoices, even approving some invoices.  She got checks written using false invoices from real vendors.  Check signers returned the checks to her.  Then she deposited the checks into her own bank accounts that had names similar to the real vendors.

But wait, there’s more.  She also submitted invoices to the organization from her own business, called FCI, which did no work for the organization.  She left these payments off her budget reports.  FCI turned out to be the bridal shop she owned, Fabulous Concepts, Inc.

Eventually, after a call from the bank, her employer discovered her fraud.  The association said they were “truly stunned” and referred to Green as a “long-time, trusted employee” who had “exploited every gap in their system” using “deception and cover up”.  The association further said they would “apply the lessons we have learned from this experienced, as well as share them with others in the nonprofit community.”

What Can We Learn?

Control who can set up new vendors.  If your software allows special permission to set up a new vendor, limit that access to someone who does not approve invoices.

Know what you’re approving.  Be sure people approving invoices know what’s been received.  Look into invoices for unfamiliar services.

Treat signed checks like money.  Don’t return signed checks to the person who keeps the books. 

Separate invoice approval from both bookkeeping and check signing.  If one individual can approve invoices and sign checks, at least make sure an independent person reviews the bank transactions online to look for large unexpected payments.

Set up online bill pay with two levels of permission.  One person can prepare payments and another can release them.

Small organizations may need to enlist Board members to help with anti-fraud controls. If a second employee is not available to review and approve a transaction, a Board member may need to step in to review and approve. Online processes make it easier to log in and oversee transactions.

Learn more about fraud prevention controls in our in our 501(c)(fit!) PLUS on-demand webinar, You Just Lost $1 Million—fraud prevention for CEOs. 

Don’t trust appearances.  While not every model employee is concealing a fraud, most fraud perpetrators look just like model employees.  Learn the profile of the average perpetrator in our FIT! TIP from May 2, 2017—Façade for Fraud? 

Learn about the most common types of nonprofit frauds in our 501(c)(fit!) PLUS on-demand webinar, You Just Lost $1 Million—fraud prevention for CEOs. 

One in five nonprofit frauds involves theft of incoming checks.* Find out how in our FIT! TIP from February 27, 2017—Spare Change.  

Get more FIT! TIPS.  Join our 501(c)(fit!) community. 

*yes, it’s true, per the Association of Certified Fraud Examiners Report to the Nations on Occupational Fraud and Abuse 2106 Global Fraud Study. 

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