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The Fraud Risks Associated With Equipment Purchases On An Organization's Credit Cards

An accounting manager for an IT solutions organization in Toronto used her company credit card to buy 5,321 iPads and 4,942 iPhones. She then sold the Apple products and kept the cash.

The accounting manager was in charge of monitoring company credit card use. Of the 600 employees who worked for the organization, about one-third had company credit cards, including the accounting manager.

In 2011, the woman purchased a single iPad with her company card and listed it for sale on eBay's classified ad site, Kijiji. She found a buyer who met her in the mall parking lot and paid her cash for the iPad. The buyer wanted more Apple products and the accounting manager starting selling him larger quantities, sometimes as many as 20 iPhone and iPads in a single transaction.

Over the 30 months that they did business, the buyer spent four million dollars—the estimated value of the iPhones and iPads that the accounting manager stole from her employer. She was able to purchase more than 10,000 Apple products without oversight by anyone at the organization.

The employer finally learned of the fraud in 2016 when an outside consultant came in to prepare the organization to go public. The consultant discovered that, in addition to the Apple products, the accounting manager had also used her company card to buy season tickets for the Toronto Raptors, make cash gifts to friends, and pay for a trip to Las Vegas.

The employer initially offered the manager a deal to avoid prosecution, but later took her to court when she failed to uphold her end of the bargain. The organization is now also suing the man who bought the iPhones and iPads. Lee Mathews "Accountant Bought and Sold $4M in iPads and iPhones on Company Credit Card" geek.com (Apr. 08, 2019).
 

Commentary

In the above matter, the employee was using her employer to start a wholesale business in Apple products. Her activity was criminal, and the purchaser of the goods has liability exposure for purchasing and trafficking in stolen goods.

A system of checks and balances is necessary so that no single employee has sole control over any aspect of the organization's finances. Have multiple employees, ideally from different departments, sign off on purchases, monitor credit card use, and oversee the organization's bank accounts. Train employees annually on fraud prevention, the importance of reporting suspicious activity, and how to report fraud.

Create a reporting procedure so that employees can report suspected wrongdoing easily and without fear of retaliation. If possible, have an outside party to whom employees can report.

Have a third party perform a routine audit at least annually on your organization's finances to spot any discrepancies that may suggest fraud. In the above matter, an audit would have spotted the spike in purchases of technology equipment or the amount of activity on one employee's credit card.

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