Case Scenario: IT at Work
Lax Accounting Systems Enable Employee Fraud
Chris was a compulsive gambler, and she hid it well. Her problem began innocently at work when one day a casino web site popped up on her computer as she surfed the Internet during lunch. She placed a few bets using the free credits offered by the site to entice first-time players. She won, and that gave her a thrilling feeling, she would later explain to fraud investigators. Two years later, as the payroll manager of a medium-sized manufacturing firm, Chris had defrauded her employer of over $750,000. Why did she do it? To pay off her gambling losses that were costing her an average of $7,000 a week. How did she do it? She took advantage of the lack of controls in her company's payroll and accounting information systems and controls. Chris' Employment History and Deception Chris had worked at the company for a decade. Her performance reviews described her as hardworking, reliable, and loyal, but did not mention she felt underpaid. Chris was bitter, thinking her employer didn't treat her fairly. When her gambling began to spiral out of control, she turned to fraud. "As far as I was concerned, they owed me," she told the forensic accountants.
The company's HR manager and comptroller were supposed to review Chris's work. But the HR manager focused on providing her with the correct data for employees' wages and benefits. The comptroller appeared not to have exercised control over payroll processing, which Chris knew. Chris's primary deception was two phony employees she set up on the company's hourly payroll system as a new and separate cost center. As she processed and received the records sent to and from an external payroll provider (EPP) without effective oversight, she was able to control the scheme without detection. The phantom employees' checks were drawn up manually by EPP, sent to Chris and deposited into an account she had in a bank near her home. Near year-end, she also had EPP make adjustments to the payroll register to eliminate the amounts paid to the phony employees. When she went on vacation, she deactivated the two phony names from the payroll. Fraud Scheme Based on Lack of Oversight Chris started paying herself for unauthorized overtime. This plan proved to be a great success-she paid herself for 1,500 hours overtime over two years as opposed to the actually 50 she did work. Chris falsified records and increased the size of her theft until the HR manager finally noticed. When confronted with the evidence, she confessed that she'd gambled the money away and could not repay.
Questions: 1. What role did trust play in Chris' ability to commit fraud for so long (that is, the employer's trust in Chris)?
2. What role did weak accounting ISs play in her ability to commit fraud?
3. In your opinion, if Chris had known that strong accounting ISs were in place would that had deterred her from trying to steal from her company?