The Office of the Auditor General for the State of Arizona recently issued a fraud alert regarding common billing schemes. The Alert cites a 2010 study done by the Association of Certified Fraud Examiners that indicated most misappropriation schemes involve the theft of cash receipts or involve fraudulent disbursements of cash. The study also indicated that billing schemes are among the most common types of theft and usually last an average of two years and have a median loss of $130,000 before being detected.
Two of the most common types of billing schemes involve creating a fictitious company then paying for services never received, or an employee who makes purchases of personal items and then submits the invoices for payment.
There are, of course, some controls that can be put into place to help mitigate the risk associated with these types of billing schemes. The greatest thing any organization can do to help minimize the risk is to create adequate segregation of duties between those setting up vendors, purchasing goods, and authorizing payments. Through the implementation of these types of controls, your organization can better detect and prevent billing schemes from occurring.
Jeff Patterson, CPA