As a forensic accounting service provider, we are involved in many investigations prompted when management discovers financial transactions that do not seem related to the business. Sometimes these cases are simple to investigate and document, such as when city clerks from small city governments issue checks to themselves and conceal the activity through the accounting.
Large government entities, which most would consider to have proper segregation of duties, are still susceptible to fraud. However, these cases tend to be more complex due to the schemes used to hide the fraudulent activity from the multiple controls typically found in larger entities with more employees.
Below is a typical billing scheme scenario involving large government entities:
This is a typical fraudulent billing scheme involving conflicts of interest between the individual authorizing payment and the specific vendors due to their unknown relationship. Large government entities fall victim to billing schemes—even with good controls—when employees get around the controls because of a lack of appropriate monitoring mechanisms. In this example, no one scrutinized manual payment requests or monitored expenditure thresholds for policy violations.