Frequent Frauds Found in Governments and Not-for-Profits

Chapter 8 CASE 8: FICTITIOUS EMPLOYEES

LEARNING OBJECTIVES

After completing this chapter, you should be able to do the following:

•     Determine how audit procedures may or may not detect fraudulent personnel in the audit of a fictitious not-for-profit (NFP) entity.

•     Identify how personnel policies and procedures of a fictitious NFP can be circumvented and lead to possible fraud or abuse

BEFORE WE START

In many NFP entities, salaries and benefits represent the largest natural expense categories. Employees of NFPs are often paid less than their counterparts in the private sector which may lead some employees to rationalize misappropriation of assets as compensation for their low salary levels.

NFPs with offsite locations often create opportunities for fraud that are exacerbated when these offsite locations lack adequate or qualified personnel. In addition to these personnel issues, management may provide limited or no oversight of the operations and personnel at offsite locations.

Indicators of personnel fraud include the following:

•     Unusual or second-party endorsements on payroll check images

•     Employees without the usual withholdings related to employer provided or offered benefits (that is, insurance, retirement, savings bonds, and so on)

•     Missing, unusual looking, or altered time and attendance records in general or frequently for the same employee(s)

•     Time and attendance records signed by someone other than the usual supervisor in general or ...