Breaching the level of trust

Anna* controlled it all. As head bookkeeper of a profitable business for eight years, Anna’s only supervisor was the Managing Director. Since the MD’s responsibilities required plenty of time out of the office, usually overseas, Anna was entrusted with the daily administration of the business, including the accounting and cash functions. She effected EFT payments to suppliers and employees, completed pre-signed cheques, and controlled cash and petty cash payments (the company regularly granted loans to staff and paid weekly staff wages).

In just under three years, Anna misappropriated over R10 million from her employer’s coffers. How was she able to siphon all this money in such a short period of time?

Primarily, by making EFT payments to her personal bank account, disguised as payments to genuine suppliers (a common fraud scheme). She also manipulated cash and cheque payments by skimming an amount off the top for herself. Anna disguised the fraudulent transactions through convoluted journal entries and obscure general ledger accounts which she knew wouldn’t red-flag her activities. So complex was Anna’s scheme, she was of the opinion that she could easily deceive inexperienced audit clerks. In the final three months before she resigned, however, Anna haphazardly transferred over R6 million to herself. When she left the company, the fraud was uncovered by the bookkeeper hired to replace her.

The business suffered as a result of no proper internal controls being implemented to negate a key business risk – lack of segregation of duties.

Horwath Forensics was engaged to unravel the fraudulent scheme, quantify the losses suffered by the company, and assess the internal control environment to identify weaknesses and implement appropriate recommendations. We also prepared a report to be utilised in criminal proceedings against Anna. In addition, we are assisting with an investigation against the external auditors for possible professional negligence.

Sadly, the ‘wake up’ call came too late for Anna’s former employers. The internal control weaknesses should have been identified earlier and risk management and fraud prevention policies implemented sooner.

As Anna gambled all her ‘winnings’ away, her former employer will not be able to recover all of their losses; their only retribution will be to see Anna behind bars.

* This write up is based on a real case study and due to confidentiality the real identity of the accused is not revealed.