Recent reports alleging that an accountant defrauded
a Toronto-area company of more than $1 million highlight
the risks of granting financial authority to one employee
without sufficient oversight, says Toronto forensic
accountant Patricia Harris.
As Global News reports, York
Regional Police fraud officers have charged a woman suspected of
defrauding her former employer of more than $1.2 million in August
2014, after providing false credentials to obtain an accounting
position with a Vaughan-based company.
During her employment, says the article, police allege the woman
wrote herself cheques from company accounts and used the funds to
pay her bills and personal debts, allegedly using 13 different
types of fraud to avoid detection.
As Harris, partner at Fuller Landau LLP explains:
"Generally, someone will commit fraud when three things are
present — known as the Fraud Triangle: Pressure (usually
financial), opportunity (the employee is in a position of trust),
and rationalization/ethics (for example, a willingness to commit
fraud and the ability to justify it to oneself)."
In many cases of misappropriation of funds, she says, the person
is in a position of trust and has authority to direct payments from
the company coupled with a lack of sufficient oversight from the
owners or supervisors of the company. In addition, he or she may
have personal debt, feel underpaid and be able to rationalize
taking funds from the company.
To help protect themselves against fraud, Harris suggests
company owners oversee and review accounting reports in a timely
manner, as well as segregate the duties of key employees —
specifically, she says, companies should try to limit the authority
of any one employee. "An employee who has control over
cash and doesn't take vacation is often a red flag that
business owners should be aware of," adds Harris.
"Ask yourself — could any one of my employees create
a purchase order, process an invoice, authorize payment for the
invoice, instruct a cheque to be prepared and sign the
cheque? If so, your company may be particularly
susceptible," she says.
Often, when there is suspicion of fraud or when a whistleblower
has stepped forward, the owner will call in a forensic
accountant to figure out what is happening.
Also, she cautions, "It is always important for business
owners to consult their legal counsel prior to any
Over the past year, we have watched the Canadian dollar drop relative to its U.S. counterpoint impacting Canadian businesses. U.S. goods and services are now more expensive, U.S. sales make a premium and errors when recording foreign exchange transactions can cost you more money.
We use a risk based approach to audit a company's year-end financial statements, but the term " risk based audit approach" can sound like the latest in business buzzwords similar to holistic, innovative and mission critical.
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