Case
Teaching Notes
Supplementary Resources
Abstract
Curtis Pietro was the highly-regarded 24-year employee and Vice President of Finance of Glessner Security, a family owned firm in western Maryland. After his fraudulent actions were discovered, he was indicted on 82 counts of felony theft, forgery, and uttering. He was sentenced to two concurrent six-year prison terms and 94 years of a suspended sentence with a five-year supervised probation upon release. He also was ordered to pay restitution to Glessner. This case illustrates the ways he funnelled company funds into his personal resources, the signals of the nearly $1 million in theft, and the legal repercussions. Students are challenged to identify occupational fraud schemes and put themselves into Neil Glessner’s shoes to identify methods of fraud prevention.
This case was prepared for inclusion in SAGE Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2023 Sage Publications, Inc. All Rights Reserved
Resources
Appendix: Partial Listing of Occupational Fraud Schemes
Cash Receipt Schemes
Such schemes account for approximately 35.8% of asset misappropriation fraud (Association of Certified Fraud Examiners, 2016).
- Cash larceny: The intentional theft of cash from an employer without the employer’s consent is called cash larceny. The cash has been recorded in the company’s records. Embezzlement is a subset of larceny. The main difference between embezzlement and larceny is whether the person had the authority and legal access to the property. For example, an inventory manager has the authority and legal access to manage the inventory. If the inventory manager walked away with a new computer from inventory, she has embezzled the property. However, if the company receptionist stole the same computer from inventory, she has committed larceny. Cash larceny schemes include cash on hand (point of sale) schemes which typically occur at the cash register or other cash collection point after the sale has been processed. Cash larceny from deposits also is included in cash larceny schemes. Employees can remove cash before the deposit is created or while the deposit is transported to the bank by either redirecting the deposit to another company bank or to their personal bank. Preventative measures for this form of fraud include (Girgenti & Hedley, 2011):
- The individual who has access to the cash should not be the same individual recording the cash or depositing the cash and is part of segregation of duties. The individual who receives checks from customers, either through the mail or from walk-ins, should not be the same individual who physically records those checks in the accounts receivable records.
- The individual receiving check payments should record the checks on a “check list” that shows who the check is from, the account number, the check number, and the amount of the check. One copy of the list should be sent to accounts receivable for recording. The original list and checks should be forwarded to the individual who will generate the deposit slip.
- Monthly bank reconciliations should be performed by an individual that is not responsible for deposits or recording payments. It should only take one or two days for deposits to appear on financial institution records. For example, a deposit made on January 30th should be visible in the account on the first or second day of February. If it takes longer than that, there must be a problem.
Fraudulent Disbursement Schemes
These schemes account for approximately 65.2% of asset misappropriation fraud (Association of Certified Fraud Examiners, 2016).
- Check tampering schemes: This type of fraudulent disbursement scheme requires employees to have physical access to the company’s checks. If the employee has access to blank checks, he/she can make the check out to personally and forge the authorized check signer’s signature. This is called the forged maker scheme. Alternatively, the employee may have access to the check after it is processed, but before it is mailed. If this is the case, the employee can commit fraud by forging the payee’s signature or altering the payee’s name. First, the employee can just steal the check or reroute the check to a different address and forge the endorsement. This is the forged endorser scheme. Second, the employee can alter the payee on the check. For example, AB Co. can be changed to AB Collins. The employee can also alter the amount of the check by adding or “tacking on” additional zeros making $15.00 into $150.00. This type of scheme is called the altered check scheme. Finally, the most difficult to detect is the authorized maker scheme. Because the employee is authorized to sign the checks it is difficult to determine whether the check is for a legitimate business expense or a personal expense. Measures to take include:
- Segregation of duties. Segregate the functions of authorizing payment, cutting checks, signing checks, and delivering them. The person who prepares the check should not handle the check after it is signed.
- Authorized makers, the person who signs the checks, should not have access to blank checks.
- The accounting manager should be independent of the check preparation function.
- The employee who prepares the request for payment should not be able to authorize the payment. Nor should that employee be involved with the delivery of the checks or the bank reconciliation.
- Verify the security of unused checks. Blank checks should be secured under lock and key. Boxes should be sealed with security tape. This makes it obvious when a box is opened when it should not be.
- All voided checks should be properly and promptly destroyed.
- Use watermarks and incorporate security threads unique to organization.
- Use a Positive Pay System which requires a list of checks issued be sent to the bank daily. Only those checks are honored by the bank.
- When using signature stamps limit access to the stamp and maintain a log of who uses the stamp and when it is used.
- Use a meter to record number of times the stamp is used and document why the stamp is used more than the number of checks recorded in the disbursements journal, if that occurs.
- Periodically suspend using the signature stamp and notify the bank to only accept original signatures.
- Rotate authorized check signers.
- Ensure the written amount, payee, and filler lines are completed when checks are signed.
- Investigate complaints for non-payment.
- Require dual signatures for threshold amounts. For example, for checks under $1,000 these two employees must sign the check and for checks over $1,000 a different two employees must sign the check.
- Perform the bank reconciliation and have a second bank statement sent to an independent employee to perform another bank reconciliation.
- Train employees to inspect canceled checks for forged signatures or altered checks.
- Monitor the mailroom by installing cameras.
- Organize the mailroom so that mail is processed in a visible area. Mailroom employees should not have personal items in the area where mail is processed. And check the trash in the mailroom for discarded envelopes.
- Payroll schemes: Employees fraudulently claim compensation for ghost employees, overstated hours or pay rate/salary to carry out payroll schemes. Ghost employees can be former employees who were not removed from payroll or fictitious employees such as a cousin or an uncle, who are fraudulently added to the payroll. In addition, employees can overstate the number of hours worked by having another employee clock in for them or changing the number of hours they report worked. An employee can also increase their hourly wage or salary. Prevention of such payroll schemes is fostered by:
- Segregation of duties. Separate employees should prepare the payroll records, the writing of paychecks, the distribution of paychecks, and the payroll bank reconciliation.
- Payroll accounting should be independent of the general ledger function.
- Human Resources should control the hiring function and should be separate from payroll duties.
- Human Resources should maintain personnel records independently of payroll, and periodically compare the two.
- Paychecks should be secure until distribution and should not be handed to the individual who has hiring authority or timecard approval. Better yet, payroll should be deposited directly into employee accounts.
- A policy should be in place that requires proper background and reference checks for all new hires.
- Companies should use a separate payroll bank account and only transfer the funds to that account for the exact amount of each payroll.
- All wage rate changes should be verified by a designated official and administered through the Human Resource department.
- Sick leave and vacation time should be pre-approved by management.
- Randomly contact customers to verify the accuracy of sales records. The calculation of commissions should be handled independently of the Sales Department.
References
This case was prepared for inclusion in SAGE Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2023 Sage Publications, Inc. All Rights Reserved
