Pay-and-Return Invoicing: Anonymous Tips Are an Important Source of Information on Employee Theft
Joseph T. Wells · Journal of accountancy online/Journal of accountancy · 2002
A philosopher once said the road to hell is paved with good intentions. As all fraud examiners know, given the right circumstances--for example, a personal financial crisis coupled with weak internal controls on the job--many otherwise law-abiding employees will rationalize their way into stealing from the companies they work for. The following case study illustrates such a situation and shows how CPAs can protect their clients and employers from pay-and-return billing scams. This particular ruse shouldn't have lasted as long as it did; a simple, inexpensive service could've stopped it much earlier. NO WAY OUT As Veronica, an accounting clerk at a dental supply wholesaler, hung up the phone, her cheeks reddened with anger and embarrassment. She knew her coworkers at the dozen or so desks nearby had heard everything--as usual. This call had been from yet another of her husband's many frustrated creditors, who demanded money she didn't have. The outstanding debts arose from a business that was operated strictly by her spouse, not her. But as Veronica knew so well, in the community property state where she and Les lived, his debts were her debts, too. When Veronica married Les eight years ago, he had been a fast-talking hustler. But success had eluded him; one after another his business ventures failed. Then, three years ago, to get a fresh start, the couple filed for personal bankruptcy. Yet, somehow, they again had gotten over their heads in debt. This time, though, because you can declare bankruptcy only once every seven years, they became desperate. AN APPARENT IMPROVEMENT In the office, Veronica's colleague, Jenny, had tried not to eavesdrop. But the low partition between their cubicles ensured she would hear most, if not all, of the calls Veronica received from creditors. Since Jenny knew her friend was in trouble, she wasn't surprised when Veronica time and again shared her tale of financial woe. But as the months passed, Veronica simply stopped talking about her debts. A DIFFICULT CHOICE More than a year later, Jenny accidentally discovered why Veronica was silent on the subject. At the end of one workday, when no one else was around, Jenny clearly saw Veronica slip a vendor check into her purse. Now it began to make sense: Veronica was stealing from the company. Jenny was incensed and couldn't think of anything else for several days. Still, the thought of turning in Veronica made her ill. But after being with the company nearly 10 years, Jenny had a personal stake in it. However, she reasoned, if Veronica kept stealing, it would only worsen her problems, so Jenny decided to report her friend anonymously. First she thought of phoning her boss but realized he'd recognize her voice. Then it hit her: She would call the company's CPA firm; they surely would want to know about this, and they wouldn't know who she was. Calling from a pay phone, Jenny was questioned by a manager at the firm. How do you know she's stealing? he demanded. Because I saw her, Jenny replied defensively. And who are you? the manager wanted to know. The conversation ended when Jenny refused to identify herself. The manager said: tell me you witnessed a theft, but you won't say who you are. You could be anybody. I can't take this further unless I have more evidence. Jenny refused to say anything more and hung up. Jenny never confronted Veronica with what she knew, but she wanted no more to do with her. Although Jenny saw Veronica steal another check about six months later, she clenched her teeth and kept her mouth shut. That is until several weeks later when Claude, a CPA recently hired as the company's internal auditor, invited her into his office. ON THE TRAIL TO DISCOVERY With records in his cubbyhole office already piled high around him, Claude explained to Jenny that--as part of his new responsibilities--he was meeting with a number of employees to get their opinions on the company's accounting operation. …