Diary of a Fraudster: Catch Me If You Can!

August 30, 2010.  Dear Diary:  I’ve been in charge of the accounting department for nine years now and have done well.  Last count I’d embezzled cash in the mid-six figures and no one has suspected, not even our auditors.  Because I’m a likable, easy to get along with, compliant, hard working person, everyone trusts me, including my bosses and the auditors.  I buy the audit team dinner and drinks a couple of nights when they’re working in my office and I get invited to all their office parties.  We have great fun together!


When the company started to earn sizable profits about five years ago, much of it was because of the accounting and internal control systems I designed and installed.  When management personnel rewarded themselves and forgot about me, I began to increase my pay to the levels I deserved.  Writing customer refund slips and taking cash from the cash register was so easy; my first $50,000 raise came that way. 


Then I realized that my boss wasn’t reviewing the details of the daily deposits I prepared.  As sales increased I removed several hundred dollars of cash each day before the deposit was prepared.  I was responsible for balancing the cash register receipts each day so it was easy to hide my share.  The auditors perform analytical procedures for cash sales each year but the cash I skimmed never exceeded 2% and that’s their tolerable variance.


Mail receipts also came to me for deposit preparation and posting to customers’ records.  Some of these checks were large and it occurred to me I could open a new bank account in the company’s name, deposit a few of these accounts and write checks to myself whenever I needed the money.  Since I posted the customers’ records and the general ledger, I could write off the customer payments to various expense accounts.  I knew our auditors always asked for support for expenditures and journal entries above $1,000 so I was careful to make several small entries instead of one large one.


Last year I incorporated 5 new corporations and used names similar to some of our vendors.  I filed SS-8s and got EINs for each of these entities. By using Microsoft Office 97, I created a variety of invoices and receiving reports for “purchases” of materials, supplies and other services we normally consume.  My boss asked about one of these vendors once but I told him I got a 25% off deal and it made him happy. I heard one of the auditors instructing his staff person to make note of any missing invoices or duplicate copies of invoices she discovered.  She didn’t find any because I do good work; all my disbursements are supported!


My personal goal was to be a millionaire before I turned 40.  That birthday is next year so I figured I needed to accelerate my plans.  Last year the boss made me an authorized signer and authorized me to make electronic transfers on all our bank accounts because he was planning on spending more time at his country club.  This enabled me to receive a big bonus (over $200,000) by making withdrawals primarily from time deposit accounts. 


At first I just hid the bank statements but then was hit with a stroke of genius.  I obtained some of the banks’ paper stock used for bank statements, scanned all the original bank statements into a Word file, changed balances and entries to agree with book balances and printed new statements in the same font and colors the bank uses. Everyone thinks they are looking at the real thing!  The auditors are coming next month but they’ll not notice a thing.  They use my bank statements as evidence of balances and subsequent cleared transactions; they haven’t confirmed bank balances for years!


Well diary, I’ve got to go now.  I need to search the Want Ads because I feel it’s time to move on to bigger and better things!  Catch me if you can!



Contact me on our website, www.cpafirmsupport.com, with your questions about the impact of fraud on compilation, review or audit services or post them below.  We can catch the fraudsters!


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by Larry Perry, CPA, CPA Firm Support Services, LLC - Larry has over 40 years experience as a CPA practitioner, author of accounting and auditing manuals, author and presenter of live staff training seminars and author of webcast and self-study CPE programs.  He is co-founder of CPA Firm Support Services, LLC (www.cpafirmsupport.com), an organization providing resources, training and consulting to smaller CPA firms.  Larry writes a weekly blog on AccountingWEB.com focusing on small audits, reviews and compilations.  He is currently developing documentation manuals and handbooks for small audits, reviews and compilations and related electronic practice aids.

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