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  • Steve Dawson CPA, CFE

Have You Been to an Office Depot Lately?

Updated: Jan 14, 2021

I am convinced that everything that is needed to sustain human life can be found at your neighborhood Office Depot or Staples. As you walk in you see food (popcorn and chocolate) and water at the checkout counter. Entering further into the store you see furniture, paper goods for the kitchen, a supply of aspirin and other remedies for common ailments, and last but not least, toilet paper. There you have it… everything necessary to sustain human life. Oh and one more thing… gift cards for just about every imaginable need on earth.

Marla was the accounting manager for her employer. Through the use of the company Office Depot credit account, Marla was able to misappropriate more than $72,000 over a two year period. Her activities included the charging of various personal items to the credit account, including large quantities of gift card purchases. Concealing the monthly payments on this account was no problem. You see, Marla signed up for the socially and environmentally responsible “paperless” statement option, along with the convenient “pay your bill online” feature.

Those of us that don’t mind “dating” ourselves can remember back to the days that the “perfect” internal control structure around these types of disbursements included the following:

Purchase order approval; receiving slip matched to the purchase order; when the invoice came, two people would open the mail and log the contents; invoice matched to the purchase order and the receiving slip; approval of invoice; preparation of check in payment of the invoice; forwarding of the check and the supporting documentation to the authorized check signer; check signer would religiously look through the supporting documentation before signing the check; return of the check and documentation to the accounting department for mailing of the check and filing of the documentation…

Whew!! That’s a lot of work. Fortunately, with the paperless statement option and the convenient online payment opportunities, we can bypass all of those processes. No more invoices to receive in the mail, no more check preparation, no more filing. I believe you sense my sarcasm.

However, consider the fact that we have continued to encounter this exact type of fraud, even without the paperless option and the online payment option. Consider the “perfect” internal control structure noted above. We continue to encounter this fraud. Why?

Well, haven’t we all experienced the authorized check signer who just doesn’t have, or take, the time to look through all of the documentation for all of the checks that need to be signed. With that being the case, which disbursements do you think are the least likely to be scrutinized? Office supplies!! Everyone needs them and everyone disburses monthly amounts for them… nothing to look at too closely here.

So What Do We Do With This Information?

There are actually two internal control issues in play here.

First, if you are going to have the paperless, online payment structure in place for these types of accounts (Office Depot, Credit Cards), then you must translate the old “paper system” internal controls to the paperless system equivalent. Bank reconciliation segregation or review must be in place. Disbursement review must be in place.

Second, if you are going to have the “perfect” paper internal control structure in place, then “follow it”… which is a matter of compliance, not design, which then is ultimately a matter of monitoring for compliance.

The purpose of this issue of the Exchange is to prompt you to consider your own “common disbursement” type items such as these noted here and consider the controls that exist around these items. Then ask yourself the question “are we applying an old system to a new way of doing things?” and/or “are we complying with the system in place?”

Reflection is good for the soul!

Empowering small businesses to develop strong Anti-Fraud Programs is our mission. We provide consultations to design, evaluate, and improve your anti-fraud program. You can also get a step-by-step guide to design a program that can be tailored for your specific needs by purchasing Steve Dawson’s book, Internal Control/Anti-Fraud Program Design for the Small Business.

If you think there may already be fraudulent activity within your company, contact us today.

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