Fraud After an Internal Control Assessment


Three years prior Skoda Minotti was engaged to perform a preventative fraud risk assessment for a successful scrap industry client. At that time, we interviewed all members of the accounting department and performed a thorough review of cash receipts, cash disbursements, billing, and payroll. We provided over 50 suggestions for internal control enhancement. Our litigation services advisory group had no contact with the client until one morning when we received a frantic phone call from the company owner concerned about a potential internal embezzlement committed by their long-time and trusted controller.

A bank, in an effort to learn as much about their new client as possible, took the initiative and performed a background check on the company’s executives. Their inquiry paid an immediate dividend when they learned that the corporate controller was not a CPA, as purported, and he had even served prison time for tax evasion. The bank shared these revelations with the company owner. In total disbelief, company management questioned the controller about the CPA license and prison time which he both “explained away” to the company owner. 

As if learning that wasn’t enough, later that same morning, the third-party payroll service called the company owner to advise him that the controller had just phoned in a negative $300,000 payroll entry. Hearing this, the controller was terminated later that day. The next call was to Skoda Minotti.


We met with the payroll service, verified the controller’s current and unusual payroll processing request, and then reviewed several years of payroll records where we were able to compile a pattern of weekly payroll padding.


Our analysis concluded that the controller was submitting negative payroll deductions when he submitted the payroll to the payroll service which resulted in an increase in his take home pay. The negative payroll deductions totaled approximately $300,000.

Moving Forward

Upon receiving the telephone call, my first reaction was to review the proactive internal control assessment that we previously performed. The internal control weakness identified, in this case, was clearly identified—and even made the top ten list of recommendations we provided to the company for immediate consideration. For whatever reason, company management chose not to invest the time (an added payroll review step), in order to improve the internal control associated with company payroll.

We strongly recommend that once such an investment is made to enhance internal controls, to take the time to consider and implement as many of the recommendations as possible.

Related Case Studies

  • Why Retaining a Reputable Accounting Firm is a First-Step “Must” for Every Business

    Why Retaining a Reputable Accounting Firm is a First-Step “Must” for Every Business

  • Forensic Team Compiles Compelling Criminal Case

    Forensic Team Compiles Compelling Criminal Case

  • Internal Controls Case Study

    Internal Controls Case Study

  • e-Newsletter Signup

    Skoda Minotti Also Offers

    SOC Reporting