Exotic Embezzling: Investigating Off-Book Fraud Schemes

For obvious reasons, cash is the asset most often stolen by dishonest employees. Fraudsters typically target cash as it enters or leaves the business. Thoroughly understanding the controls and procedures in place for processing cash flowing through a business is of primary importance when conducting a fraud examination. Inadequate cash flow controls, especially over substantial amounts, allow dishonest employees to divert cash into their own pockets. Understanding these controls allows investigators to generate ideas, known as fraud theories, that describe how someone could steal cash from the organization without getting caught. These ideas can be categorized as either on-book or off-book fraud schemes.

Historically, law enforcement and financial investigators are reluctant to investigate off-book fraud schemes due to their lack of direct, documentary evidence. The case study below illustrates various methods effectively used to detect and investigate off-book fraud schemes. Such indirect methods include financial statement analysis, undercover surveillance, invigilation, and admission-seeking interviews.