Forensic Accounting Case Study
February 6, 2020
[Note: To protect our clients’ privacy, we have changed the names of the people and company involved in the below case study.]
Mary was, by all accounts, an all-star employee at Portland Medical Practice (PMC). As the controller, she managed all the company’s finances and payroll. She was hardworking, punctual, polite, and responsible. Everyone loved Mary! But Mary had a secret.
Doug, the owner of PMC, was sifting through his business’s financial reports. He was, admittedly, dismayed. “Why isn’t my practice doing better?” he asked himself. Upon closer inspection, he saw that PMC had (apparently) been paying a great deal of overtime pay. But this was news to Doug — none of his employees had been authorized for overtime. Consternation turned to panic as Doug realized that the employee who had apparently been receiving overtime pay for months was none other than Mary. He suddenly saw all the red flags that had been there all along: Mary prepared the payroll and controlled the general ledger and took the money to the bank and managed all the disbursements. Mary had unfettered access to the company coffer, and she had reaped the benefits.
Doug called our team on a Sunday night and we agreed to meet right away. He knew that Mary had to go but was (rightly) concerned about her potential retribution if she didn’t react well to being terminated. After all, she had access to the company’s most sensitive information. PMC did have liability insurance for fraud, but not as much as we had hoped — and not as much as Doug was led to believe when he purchased the policy. Our game plan was to alert the authorities and work with the information that we had, rather than conduct a deeper forensic analysis.
As it turns out, Doug never had to terminate Mary — she resigned first thing Monday morning, clearly aware that she had been found out. To substantiate her culpability, our team donned our detective hats. Using PMC’s payroll records, Mary’s computer login history, Mary’s VPN history, and the building’s access records, we demonstrated that Mary had worked only her assigned 32-hour weeks while directing unauthorized overtime payments to herself over the course of 18 months. All in all, PMC lost approximately $100,000 in Mary’s payroll scheme.
The bad news is, PMC lost a lot of money at Mary’s behest. The good news is, it could’ve been a lot worse. According to the Association of Certified Fraud Examiners’ 2018 Report to Nations, the median loss for occupational fraud is $130,000, and it typically takes about 30 months for the victims to discover the fraud. Professional services firms are particularly susceptible to fraud for a number of reasons, including the general bustle of the office, the trusting work culture, and the billing software used.
If you think you’d benefit from bolstering your business’s fraud protections (spoiler alert: you probably aren’t protected enough), or if you have any questions about occupational fraud, please reach out to our team of experts. Our detective hats stand at the ready, but let’s engage before we need to use them.