The Magic of erasable ink and Bank reconciliation

Fraud in businesses exists in many forms, some are disguised in complex structures, others exhibits out-of-the-world creativity in the application of accounting standards while many happened from just a simple act of deception. In a recent reported case in Straits Times on 31 January 2018, an administrative clerk, Ms S of a Japanese MNC in Singapore used just a black Pilot Frixion erasable ink pen to get away with more than half a million dollars and spent the bulk of that ill-gotten money in Marina Bay Sands Casino. The interesting fact of this case is that magic of erasable ink fraud continued for nine months before the fraud was found out through the performance of a bank reconciliation. The secret of this simple magic is this. Ms S wrote genuine payee names for 14 cheques totaling S$504,737.42 over a period of nine months from July 2015 to March 2016 and sent these cheques for authorised signing by the business manager. She then erased the payee names and replaced that with her name. A monthly bank reconciliation of the amount in financial records to the balance in bank account revealed that these two amounts were different even after taking into account of all timing mismatches of genuine receipts and payments (see discussion on bank reconciliation in “Taking bank reconciliation for granted”, 7 March 2019). Subsequent investigation by the Company led to the discovery that Ms S was the payee for all the 14 cheques.

Even though bank reconciliation is an effective pre-emptive control for such fraud, it would be better if there is an active control that prevent the repeat of this magic of erasable ink. An active control of printing the payee name and amount on the cheque will probably put an end to this magic from the start. However, no controls or systems can totally replace the importance of ensuring the right person with the right values is selected for the job.

Ms S was found in possession of two erasable-ink pens in by the police in the course of investigations, and it will never be wrong not to take bank reconciliation for granted. And as common as in most fraud case of employee’s misappropriation, the money taken was not returned. Ms S was sentenced to 50 months’ jail.