Where in the World Is Your Cash Going?

Foreign corrupt practices is a tough area for auditors; at best, you target a rain-making salesperson, at worst, a high-ranking executive.  However, a more difficult problem may occur when the Department of Justice discovers your company or client pays bribes to foreign officials and asks, where were the auditors?

Daily Drill: Either electronically or by using thumbtacks on a paper map, mark your company's known operating bank accounts.  Obtain bank statements for each of the accounts over the last quarter.  Mark the destination of large transfers or payments to unknown accounts, and explore the possibility that these indicate potential corruption.  Indicators of foreign corrupt practices include transfers to slush funds or "cash desks" accessible to sales personnel, or facilitating payments to unknown vendors. 

Rewarding ??? Behavior

In his book, Free, Perfect, and Now (New York, Simon and Schuster, 1999), Robert Rodin, the former CEO of Marshall Industries, described these behaviors his employees embraced to achieve incentive compensation rewards . . . Read more.

Daily Drill: Follow the money.  With an assist from Payroll and HR, determine which variable / incentive compensation plan in your organization outlays the most money.  Select the top payees from that plan over the past year, and pull the documentation supporting the payouts.  Does proper documentation even exist?  Does the compensation reward sound business decisions?

Hurry!

In 1973, Princeton researchers John Darley and Daniel Batson conducted a study on students at the Princeton Theological Seminary. “From Jerusalem to Jericho,” published in the Journal of Personality and Social Psychology, was their reenactment of the Good Samaritan story in Luke, Ch. 10 of the Bible, in which three men passed by a badly beaten man on the road. Only the Samaritan, a religious outcast of the time, stopped to help, while two other men, both religious, passed the victim by.  The researchers sought to determine whether folks with religious thoughts would be any more likely to help a distressed person than anyone else.

They would not.  However, one factor did emerge from the study that correlated with a person's willingness to stop and help a distressed man.  And this lesson will improve our ability to prevent and detect fraud.  Read more.

Daily Drill: Flip through a set of manual documents recording transactions prone to rush jobs, such as health benefits claims, manual check requests, or loan applications.  Seek evidence of haste: please hurry, expedite, return to me ASAP!  Such attempts to bypass controls are strong indicators of fraud, waste, and abuse.

The False Promise of Purchase Cards

Purchase cards will solve our expense reimbursement problems because we can use system controls to block certain vendors and set spending limits.  And even if we do have problems, the bank refunds us 1% of our spending, which will cover some losses.

The benefits of purchase cards (P-cards) sound appealing, and they are. Passing the cost of processes and controls off to systems and third parties such as the card-issuing bank saves money.  And here is what happens when managers take their eyes off of spending . . . Read more.

Daily Drill: Determine who your top P-card spenders are.  Do the names make sense?  The amounts?  Check some of their statements for odd spending behavior.

Time Out

In your career, in your personal life, there are plenty of times when you take a look at a situation, and think, I sure wish I could tell them how ridiculous this idea is.  Sometimes you’re right, sometimes not.

However, you occasionally witness a decision that convinces you: at best someone’s going to get fired or sued, at worst the company will sink or someone will die.  What do you do?  How do ethical decision makers running sustainable organizations lay foundations and foster environments which empower their folks to object when they sense a real problem?  Read more.

Daily Drill: Recall the most recent conversation you had in the workplace about a transaction, employee behavior, or business practice where you thought, Time Out.  If you have authority to access the data, check facts supporting the decision.  Are they even documented?  Has data been distorted to support a flawed decision?  What are the fraud implications?

What’s New?

I enjoy reading history, and am particularly fascinated when I run across some debilitating fraud or scam affecting a society in some destructive way, centuries ago.

I am also endlessly amused when people ask me, why is this stuff (Enron, Bernie Madoff) happening all of a sudden?  Read more.

Daily Drill: Back to the basics.  Spend just one day on this.  Don't write a plan, don't write a program.  Choose a transaction or asset balance you have not tested in some time.  It could be simple like a local cash balance or inventory, it could be a little riskier like the expense report of your top sales rep.  Before you perform the test, brainstorm the symptoms of fraud, waste, and abuse you could see.  Then, describe the test you plan to perform in one single verb.

A Fraud Lesson from Oz

Chances are, you’ve seen 1939's The Wizard of Oz.  Do you remember what Dorothy's companions, the Scarecrow, the Lion, and the Tin Man, each sought?

You likely know the answer, even if you have to think a minute.  But here's one you likely don't remember: what did the Wizard actually provide the three companions before he directed Dorothy back to Kansas?  Read more.

Daily Drill: Think of the last person in your organization to receive a public commendation, or a significant monetary reward.  Discreetly check the documentation supporting their prize.  Compare the data to periods surrounding the event - before and after.  Do you see any odd spike in the transactions causing you to believe the data supporting the award might have been faked?