Lessons from Yale: How to prevent internal fraud in your organisation
Fraudulent activity can have a damaging impact on you and your company’s finances and reputation. As a finance professional, you play a critical role in safeguarding your company, so it’s in your best interests to implement strong financial controls and to closely monitor all financial transactions.
We believe it’s important to learn from recent fraud cases and are revisiting an eye-opening case of fraud that happened on the grounds of Yale University. It might help you think of proactive measures to protect both you and your company from the negative consequences of fraud.
Former Yale official admits to $40 million fraud scheme
A former Yale School of Medicine administrator pleaded guilty to defrauding the university of $40 million in computer equipment that she had purchased and resold to pay for luxury vehicles, real estate, and vacations, in March 2022.
The administrator, Jamie Petrone, admitted that she had submitted thousands of purchase orders for computer devices and tablets that included Microsoft Surface Pros and iPads under the pretence that they were for medical studies.
By keeping the amount of individual purchase orders under $10,000, Ms Petrone was able to avoid an additional layer of review required by the university. In 2021, she arranged for the university to buy 8,000 iPads and Surface Pro tablets, according to a criminal complaint.
But in reality, investigators said, Ms Petrone shipped the equipment to an out-of-state business in exchange for money, which was deposited into the bank account of a company that listed her as a principal.
When authorities confronted her, she admitted that the fraud scheme had continued for as long as a decade. She was arrested in September 2022 and later pleaded guilty.
Since the incident, Yale has worked to identify and correct gaps in its internal financial controls.
Why internal fraud prevention and financial controls are so important
This case study serves as a stark reminder of the importance of internal controls and monitoring. The following are key takeaways from the case:
The importance of internal controls and monitoring.
Regular monitoring and employee background checks can detect and prevent fraudulent activities.
Segregation of duties.
This is widely considered to be an effective way to prevent fraud in the accounts payable process. Dividing responsibilities among multiple individuals so that no single person has complete control over the entire AP process, reduces opportunities for fraud to occur. By breaking up the process into smaller parts, it becomes harder for an individual to commit fraud without detection.
The role of employees and clear processes.
Employee training on fraud awareness can be instrumental in detecting fraud before it becomes a costly issue.
Regular, unscheduled audits can detect and prevent fraud.
By reviewing financial transactions and identifying unusual activity, regular, unscheduled audits can help detect and prevent fraud.
The impact of technology.
Implementing automated systems with fraud detection capabilities, such as ApprovalMax, could have significantly reduced the risk of internal fraud for Yale. A fully automated approval process would enable them to detect and stop suspicious activity before becoming a costly mistake.
The importance of having a system of transparency and communication.
It’s important to have a system for reporting any suspicious behaviour so it can be addressed immediately.
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Tech-savvy fraud prevention: How ApprovalMax can safeguard your organisation
Technology plays an invaluable role in preventing internal fraud, and ApprovalMax is here to help. Here are a few ways ApprovalMax can keep your business safe:
Automated approval workflows: Delegating financial authority (DFA) is crucial for preventing fraud. With ApprovalMax, it’s easy to set up and enforce your DFA policy. Plus, it’s faster than manual approvals – 50% of bills are approved in less than a day.
Audit trails and reports: ApprovalMax records all activities and generates detailed reports, making fraud attempts less likely and providing valuable evidence if something does happen.
Restricted access to Xero: ApprovalMax approvers don’t have access to the general ledger, only the information relevant to the documents they approve.
Detection of changes after approval: ApprovalMax’s fraud detection features automatically alert the administrator of any documents approved directly in Xero or changes made to approved documents.
Matching bills and purchase orders: ApprovalMax’s matching feature ensures you’re only paying for what was ordered and in the correct amount, blocking approval if there’s a discrepancy.
Supplier approvals: ApprovalMax’s supplier approvals feature and the ability to restrict purchase order requesters guarantees that only authorised suppliers are used by requestors, effectively reducing the risk of fraud.
Final words
Preventing fraud is essential for the financial health and reputation of any organisation. You can confidently tackle the challenges of fraud prevention with the right tools and knowledge. Implementing automated systems with advanced fraud detection capabilities (like ApprovalMax) can also help reduce internal fraud risk. By implementing strong controls, monitoring financial transactions, and training employees on identifying and reporting suspicious activity, businesses can proactively protect themselves from the detrimental effects of fraud.
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