May 10 , 2022

CFO Minute:  Wise Up to Common Embezzlement Schemes

AIOAs CFO Minute Blog

We just completed a four-part series on mitigating risks in your A/P process, if you haven't read it yet, take a look. Unfortunately, the threat to your business may not always come from the outside. Here's a quick look at the most common embezzlement schemes and how to protect your business from them. Being apprised of the most common and easily produced ways to commit fraud and embezzlement will help you recognize it better or create processes throughout your financial system to prevent it.

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Outright Funds Theft
Involves taking cash or bank deposits, or transferring funds to an account controlled by a perpetrator.

Example: A CFO embezzled 2.1 million over 4 years by using funds to pay his American Express bill.
Prevention: Set separate duties for making payments and reconciling accounts between two or more individuals.


Check Fraud
Involves altering or forging checks, or making checks payable to themselves.

Example: Corporate Controller stole $16 million over 9 years by printing checks, depositing them, and then voiding them in the system. Employee would then issue checks to vendors but never mailed them.
Prevention: Split responsibility for the payables function between at least two employees.


Credit Card Fraud
Includes fraudulent use, authorization, or creation of an employer’s credit or debit card.

Example: Over $200,000 was stolen when a woman opened a credit card in her own name but linked it to a business owner’s account. Statements went to her address instead of the company and she was able to keep it hidden.
Prevention: Send company credit card statements and bank statements to the home address of the owner of the company, rather than the business address for review prior to reconciliation.


Vendor Invoicing & False Billing
Involves using fictitious invoices from made-up companies, or trumped-up invoices from actual vendors.

Example: A hospitality facility manager and accomplices invoiced $500,000 for equipment rentals that never took place. Invoices were paid to conspirators’ “companies”.
Prevention: Ensure different people approve and vet the selection of vendors and the authorization of payments. Conduct background checks on all vendors you’re doing business with.


Payroll Fraud
Occurs when an employee uses a payroll system to divert funds to themselves or family members.

Example: A hospital payroll director stole $480,000 over three years by “paying” salaries and vacation time to terminated employees.
Prevention: Regular review of payroll records. Functions for issuing payroll checks or deposits and reconciling deposits should be separate. Changes should require approval from multiple levels of management.

Did you know, losses from embezzlement are often never recovered? Preventing fraud is a critical action for all financial leaders. We've pulled together a few ideas to help you safeguard your business. What would you add to the list?




    • Implement checks and balances.
    • Send bank statements to business owners home.
    • Pay attention to employee lifestyles; note extreme changes.
    • Promote a culture of trustworthiness and integrity.
    • Talk with all employees about fraud detection and internal controls. Have them sign a code of ethics.
    • Complete background and credit checks on employees who will be handling money.
    • Review cancelled checks that come directly from the bank.
    • Giving end-to-end responsibilities for accounting.
    • Sending bank financial statements directly to the accounting department.
    • Assuming long term employees are incapable of embezzlement.
    • Not performing a criminal and credit check on employees who will be handling money.
    • Allowing embezzlers to leave your employment without pursuing a conviction.

When you add a fractional CFO to your leadership team, you gain an expert who will define and measure your financial strategy. We're here to help your business thrive and grow! Contact us to learn more about our CFO Services or to Book A Meeting with someone from the team.