Preventing Skimming and Conflicts of Interest in Purchasing

A recent embezzlement scandal in the news headlines involved an employee ordering goods that were personal in nature on the company's account with a PC supplier. They perpetrated the fraud by purchasing consumer electronics, such as laptops, a digital camera and similar goods that were supposedly intended to be used as office equipment. However the goods were delivered directly to the employee's residence and no one at the company actually ever used these goods for business purposes. The accounts payable clerk simply paid the bill to the PC vendor who supplied the equipment without verifying whether the goods were ever delivered to the office. On a related note, this same lack of controls is also usually present in purchasing kickback schemes where an employee in collusion with an accomplice at the supplier organization places orders for goods that are either overbilled or never received.

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Without an independent comparison of goods received and amounts ordered organizations are at risk for approving payment for goods that were not ordered or not received. This is also an important control for making sure that incoming goods are not skimmed prior to being recorded to inventory. The accounts payable personnel should match a purchase order to a receiving report and compare the quantities, item descriptions and pricing for any discrepancies. Any discrepancies should be investigated prior to approval.

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by Alex Vuchnich, CPA, CFE - Alex Vuchnich is the developer of Controlzkit an internal controls anaylsis tool and shares his perspective on how audit and accounting theory, technology and professional ethics interrelate to create forward thinking profitable firms.

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