July 23, 2012
Alan Winters, Advisory Services Partner, Article "White Collar Crime - Identifying, Responding to and Investigating Internal Fraud" Featured in the New Jersey Law Journal
While newspapers headline larger scale corporate fraud like R. Allen Stanford, Madoff, Tyco, etc., fraud often occurs in small and medium-sized businesses like ours and our clients'. A common type of fraud is defalcation or misappropriation of assets. A defalcation can involve a misappropriation of cash, supplies, inventory or other business property.
Defalcation is most often committed by employees who have a close relationship with the owner/operator and wear multiple hats within the company or practice, i.e., accounts payable, payroll, accounts receivable and bookkeeper. Lack of segregation of duties, along with other inadequate internal controls, creates opportunities for fraud. In larger organizations, perpetrators tend to be the individuals with some degree of management authority: CFO, controller or accounts payable/receivable manager.
In each case, fraud requires access and knowledge. To counter internal fraud, management should be very familiar with all of the following: signs of potential fraud; considerations when responding to a fraud scheme; and how to investigate potential subjects of a misappropriation.