Cash disbursement fraud schemes pose a persistent threat to organizations of all sizes, as unscrupulous individuals exploit weaknesses in areas such as payment processes, expense reimbursements, payroll systems. By understanding these schemes—including how they are carried out and the warning signs they present—organizations can implement effective internal controls, monitoring procedures, and employee training to deter fraudulent behavior. The following guide explains five common cash disbursement schemes, with each entry providing a description of how the fraud typically occurs and actionable steps for prevention.
1. Billing Schemes
Billing schemes occur when an employee manipulates invoicing processes to cause unauthorized payments. Typical examples include setting up a shell company to submit fictitious invoices, paying legitimate invoices twice and pocketing the vendor’s refund, or overbilling through inflated prices for actual goods or services. These methods exploit weak controls in purchasing and accounts payable, allowing funds to flow out of the organization undetected. According to the Association of Certified Fraud Examiners’ (ACFE) 2024 Report to the Nations, billing schemes account for 22% of all asset misappropriation cases in the United States, resulting in a median loss of $100,000 per incident.
Prevention: To prevent billing schemes, organizations must enforce strong segregation of duties across purchasing, receiving, and payment functions so that no single individual can complete all steps. Three-way matching (purchase order, receiving report, and invoice) is crucial, as is a robust vendor onboarding system that verifies new suppliers. Regular reviews of vendor records and periodic audits help identify duplicate entries or suspicious trends, while a transparent whistleblower policy can encourage employees to report potential misconduct.
2. Check Tampering Schemes
Check tampering schemes involve manipulating checks to redirect funds to an unauthorized recipient. Common methods include forging the signature of an authorized signer, altering the payee or amount on a legitimate check, intercepting checks before they reach the intended payee, or creating a concealed check amid legitimate ones. In some cases, a trusted employee with check-signing authority might write checks to themselves or their associates. According to the 2024 Report to the Nations, check tampering accounts for approximately 11% of asset misappropriation cases, with a median loss of $155,000.
Prevention: Prevention starts with strict controls over check stock, including secure storage and the use of security features like watermarks and micro-printing. Implementing dual signatures for checks above a certain threshold, adopting positive pay services with the bank, and conducting prompt bank reconciliations will help detect discrepancies. It is equally important to segregate duties so that those approving checks do not also handle the reconciliation process, reducing opportunities for undetected tampering.
3. Expense Reimbursement Schemes
Expense reimbursement schemes occur when employees claim personal, inflated, or entirely fictitious expenses under the guise of legitimate business costs. Examples include submitting receipts for personal travel as business-related, altering meal or lodging receipts to show higher costs, creating fake documentation for expenses that never occurred, or seeking multiple reimbursements for the same purchase. According to the ACFE, expense reimbursement schemes account for approximately 13% of occupational fraud cases and have a median loss of $50,000.
Prevention: Organizations can mitigate these schemes by establishing clear, written expense policies that detail allowable costs, require original itemized receipts, and set strict documentation standards. Management review of each expense report should be thorough, with special attention paid to repetitive or suspicious claims. Utilizing data analytics can help flag red flags such as duplicated expenses, and ongoing fraud awareness training ensures employees understand the potential consequences of misrepresenting expenses.
4. Wire Transfer and Electronic Payment Fraud
Wire transfer and electronic payment fraud entails unauthorized access to an organization’s online banking or payment platforms to move funds illegally. Criminals may use phishing or business email compromise (BEC) tactics to impersonate executives or vendors and request urgent transfers. Hackers might also take over a legitimate vendor’s email to intercept invoices and redirect payments to fraudulent bank accounts. According to the most recent data available from the Federal Bureau of Investigations, businesses incurred over $2.9 billion in losses due to BEC tactics alone in 2023.
Prevention: Dual authorization for all wire or electronic payments above a certain threshold significantly reduces this risk. Multi-factor authentication (MFA) for online banking, along with robust access controls, prevents unauthorized logins. Call-back verification for any new or changed wire instructions should be made using contact information independently verified from original vendor records. Timely account reconciliations allow swift detection of any suspicious transactions, and continuous employee training in spotting phishing attempts can help close security gaps.
5. Kickback Schemes
Kickback schemes typically involve collusion between an employee and an outside party, such as a vendor or subcontractor. The vendor overbills or inflates pricing, and in return, the employee receives a portion of these illegal gains. This arrangement undermines fair market practices and inflates costs for the organization, often remaining undetected if procurement and vendor oversight are weak. According to the ACFE, bribery and kickback schemes account for approximately 25% of corruption cases, with median loss of $200,000.
Prevention: A strong code of conduct that forbids the acceptance of gifts or side deals from vendors is a fundamental defense. Organizations should require competitive bidding for contracts, rotate vendors periodically, and require conflict of interest disclosures from employees involved in procurement. Surprise audits of vendor invoices can help uncover anomalies. Clear management oversight, with multiple approvals for substantial purchases, further reduces the opportunity for covert collusion.
By understanding these schemes and instituting robust internal controls, regular oversight, and a culture of ethical accountability, organizations can greatly reduce their exposure to fraud and safeguard their financial resources.
Stay Tuned
This is article is a part of our “Leader’s Guide to Fraud Prevention” series, designed to provide ongoing guidance on simple, effective actions leadership can take to prevent fraud, waste, and abuse. Future articles will explore everything from emerging fraud trends to critical risk areas like cybersecurity, as well as entity-wide recommendations for strengthening controls. By making a few strategic improvements to your fraud prevention environment, your organization can build a stronger foundation for long-term financial success.
Missed the first few articles of the series? Check them out here:
- Risk Mitigation Starts with You | The Bonadio Group
- Fraud Facts & Misconceptions | The Bonadio Group
- How to Protect Your Business from Cash Fraud | The Bonadio Group
- Payroll Fraud: Understanding the Schemes Involved | The Bonadio Group
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
