What's Your Fraud IQ? This Month: Check and Electronic Payment Tampering

By McNeal, Andi | Journal of Accountancy, June 2016 | Go to article overview

What's Your Fraud IQ? This Month: Check and Electronic Payment Tampering


McNeal, Andi, Journal of Accountancy


All organizations issue payments for expenditures, whether inventory purchases, repairs and maintenance expenses, utilities, or contract services. Consequently, manipulation of the cash disbursement process represents an inherent fraud risk in every organization. And while the use of electronic payment methods has increased sharply in recent years, many business payments are still made in the form of paper checks. Organizations must be aware of the ways both electronic and paper-based payments can be tampered with, as well as how to proactively combat this risk. Do you know how to help prevent check and electronic payment tampering? Would you recognize the warning signs of these schemes? Take this quiz to test your knowledge.

1. Check and electronic             a. Most common.
   payment tampering schemes are    b. Most costly.
   the--form of asset               c. Least common.
   misappropriation.                d. Least costly.

2. Green Inc.'s auditors            a. Complaints from Green
   received a tip that one of the      Inc.'s customers about delays
   company's accounting clerks         in payments being posted to
   has been stealing blank             their accounts.
   company checks and writing       b. Unexpected past-due notices
   them to herself. In response,       from company vendors.
   the audit team is searching      c. Practice signatures or
   for warning signs of such a         indentation marks in the
   scheme. Which of the following      accounting clerk's work area.
   findings is most likely to       d. Lack of breaks in check
   indicate that the tip was           numbers on the cash
   valid?                              disbursements journal.

3. Elm Co. has several vendors      a. Automated Clearing House
   that have requested payments        (ACH) filters.
   via electronic checks. Elm's     b. Positive pay.
   management wants to comply       c. ACH blocks.
   with the requests but is         d. Proxy account number.
   concerned about the potential
   fraud risks that might
   accompany these transactions.
   Consequently, management has
   asked the company's controller
   to look into best practices in
   internal controls with these
   types of payments. Which of
   the following controls would
   enable Elm Co. to restrict
   electronic check payments from
   its bank account to only those
   transactions that meet a set
   of predefined criteria?

4. To prevent check tampering,      a. Prohibit authorized signers
   organizations should do all of      from presigning checks.
   the following EXCEPT?            b. Have an authorized signer
                                       perform the bank
                                       reconciliation each month.
                                    c. Establish a maximum dollar
                                       amount for checks drawn on the
                                       bank account.
                                    d. Rotate authorized check
                                       signers and keep track of who
                                       should sign checks on a given
                                       day.

5. The results of the fraud         a. Extracting transactions
   risk assessment at Blanco Inc.      just under authorization
   indicated that check tampering      thresholds.
   poses a significant risk to      b. Summarizing voided checks
   the organization. To help           by user.
   monitor for warning signs of     c. Identifying all checks with
   check tampering, Blanco's           a zero-dollar payment.
   internal audit group is          d. All of the above.
   planning to set up some
   automated recurring data
   analytics tests. Which of the
   following tests would be
   helpful in identifying
   potential check tampering?

ANSWERS

1. (b) Association of Certified Fraud Examiners (ACFE) research has consistently shown check and electronic payment tampering schemes to be the most costly form of asset misappropriation; in the 2016 ACFE Report to the Nations on Occupational Fraud and Abuse, the median loss caused by these schemes was $158,000, which was more than oneand-a-half times as high as the median loss caused by any other type of asset misappropriation scheme. …

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