By Bachir El Nakib (CAMS), Senior Consultant, Compliance Alert (LLC).
John, an accounts payable clerk, has worked at his company Zoom Racing, Inc. for ten years. Last year, he accidentally sent two check payments to the same company for the same invoice. He called the vendor, and they quickly returned the second check.While he was embarrassed about the mistake, he realized–in the course of these events–that had the check not been returned, no one would have noticed.
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John has the itch to buy a new BMW. He has saved some money, but he needs more–much more. Where could he get the additional funds? And then he remembers the prior year double payment, and an idea comes to him. Yeah…that might work.
John intentionally pays the company’s vendor River Merchants, Inc. twice for the same invoice of $47,540. The checks are signed electronically by computer, so no one is physically inspecting the checks before mailing. John’s coworker, Liz, mails the checks; so he can’t just steal the second check before they are sent out.
Liz mails the checks on Wednesday. The next day John calls River Merchants, Inc. saying, “Sorry, but I just realized I sent two payments to you for the same invoice. Would you please return the second check? My address is…”
John receives the second check Monday morning. Now he converts the check to cash by opening a bank account in the name of River Merchants, Inc. and depositing the check. John is the authorized check signer on the account, so he writes a check to himself. He’s soon cruising the boulevard in his new red Beemer.
No one is monitoring the accounts payable process. While the company did implement a sound policy of having a second person mail the checks, no one is reviewing check disbursements for double payments.
Periodically download the check register to Excel; you only need the following columns:
Check amount (amount paid)
Sort the payments by vendor name; then scan the list for same amounts paid to the same vendor.If you see payments to the same vendor with the same invoice number and the same check amount, then definitely dig deeper. (Accounts payable software should not allow the processing of two checks with the same invoice number–even so, some systems allow an override; alternatively, the fraudster may bypass this restriction by altering the invoice number.) If it appears that a double payment has occurred, call the vendor to verify that they received two payments (and that they have not returned one).
Obviously, some payments to vendors should be for the same amount (such as rent)–these should be ignored for the purposes of this test.
Note–Sometimes, in performing this test, you will find double payments–made by mistake–that the vendor has not returned. The first time I did this test I found such a payment for over $75,000.