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FOREWORD

It is a pleasure to write the foreword for Principles of Fraud Examination, a book authored
by my friend, Dr. Joseph T. Wells. I have known Joe for over 20 years. While most students,
practitioners, and academics know him as the founder and chairman of the Association of
Certified Fraud Examiners, I know Joe as a friend, as one who has influenced my thinking,
knowledge, and research about fraud, and as a person who is one of the most thorough,
ambitious, and thoughtful fraud researchers I have ever met. And, as you will see from
reading this book, Dr. Wells is an excellent communicator who can make numerous fraud
theories and schemes easy to understand.
Joe is a prolific writer. For several years, he authored a fraud-related article in nearly
every issue of the Journal of Accountancy, and he has written many other books and
articles. Dr. Wells’ work has won numerous awards. He has also written and produced
more than a dozen fraud-related videos that are an integral part of nearly every accounting,
auditing, and fraud curriculum in the United States.
It is my opinion that Joseph T. Wells has made a greater contribution to the
prevention, detection, and investigation of fraud than any person in the world. Because of
his work in fraud education and research and his vision in organizing the ACFE, there are
tens of thousands of people who have a better understanding of fraud and who are working
to reduce its cost and occurrence.
Principles of Fraud Examination provides an excellent description of the behavioral
and social factors that motivate occupational offenders. It also provides an analysis and
taxonomy of various kinds of frauds and cases that illustrate and help readers understand
each type of fraud. The concepts described in the book are sound and are based on the
most extensive empirical research ever conducted on the subject. This book is a must read
for any student interested in the study of fraud.
Reading Principles of Fraud Examination will help you better understand the various
ways fraud and occupational abuse occur, thus helping you identify exposures to loss and
appropriate prevention, detection, and investigation approaches. And, as you will see, the
book is written in a way that will capture and hold your attention. The numerous fraud
stories and personal insights provided by Joe will have you believing you are reading
for enjoyment, while in fact, you will be learning from one of the true master educators.
I believe this book is destined to become one of the real classics and definitive works on
the subject of fraud.

W. Steve Albrecht, PhD

Brigham Young University

vii
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PREFACE

The numerous headline-grabbing accounting scandals of recent years—Enron, WorldCom,

Tyco, HealthSouth, Bernie Madoff, Lehman Brothers, and Olympus, among others—would
be reason enough to study the serious issue of fraud. But the methods used in these cases
are not new; they are merely variations of tried-and-true scams.
Pliny the Elder first wrote of fraud over two thousand years ago when he described
the adulteration of wine by crooked merchants in Rome. Since that time, fraud has
become an increasingly serious issue. Now, in the information age, it can threaten the very
underpinnings of our economy.
Accountants have historically had an important role in the detection and deterrence
of fraud. But fraud, as you will read in the following pages, is much more than numbers. It
involves complex human behaviors such as greed and deception, factors that are difficult
to identify and quantify. In short, books, records, and computers don’t commit fraud—
people do.
Understanding why and how “ordinary” people engage in fraudulent behavior has
been my life’s work. Like many readers of this book, I began my professional career as
an accountant. But after two years toiling in the ledgers of one of the large international
accounting firms, I realized that auditing was not my calling. In search of adventure,
I became a real-life, gun-toting FBI agent.
The truth is that I was more often armed with my Sharp model QS-2130 calculator
than my trusty Smith & Wesson model 60 five-shot stainless-steel revolver. Sure, there were
the occasional gun battles. But most of the time I was waging war against corporate titans
and crooked politicians. In the decade I spent with the Federal Bureau of Investigation,
I learned a difficult and humbling lesson: My accounting education and training had not
adequately prepared me for fighting fraud. But the status of antifraud education since then
has begun to change, little by little.
To assist today’s accounting students, Principles of Fraud Examination is written to
provide a broad understanding of fraud—what it is and how it is committed, prevented,
detected, and resolved.
Understanding how fraud is committed is paramount to preventing and detecting it.
I’ve learned that in the 30-plus years since I carried a badge and gun. After I left the FBI
in the early 1980s, I offered fraud investigation services to major corporations. Then, in
1988, I became the chairman of the Association of Certified Fraud Examiners, the world’s
largest antifraud organization. It is a position I still hold. In that capacity, I write, educate,
and research fraud issues.
This work has its genesis in my fifth book, Occupational Fraud and Abuse, first
published in 1997. At the time, I was intrigued by the definition of fraud as classically set
forth in Black’s Law Dictionary:
All multifarious means which human ingenuity can devise, and which are resorted to
by one individual to get an advantage over another by false suggestions or suppression
of the truth. It includes all surprise, trick, cunning or dissembling, and any unfair way
which another is cheated.

ix
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x PREFACE

The definition implied to me that there was an almost unlimited number of ways
people could think up to cheat one another. But my experience told me something else:
After investigating and researching thousands of frauds, they seemed to fall into definite
patterns. If we could somehow determine what those patterns were and in what frequency
they occurred, it would aid greatly in understanding and ultimately preventing fraud. And
since so much fraud occurs in the workplace, this particular area would be the starting point.
So I began a research project with the aid of more than 2,000 Certified Fraud Examin-
ers. They typically work for organizations in which they are responsible for aspects of fraud
detection and deterrence. Each CFE provided details on exactly how their organizations
were being victimized from within. That information was subsequently summarized in a
document for public consumption, the Report to the Nation on Occupational Fraud and
Abuse. The first Report was issued in 1996. Since then, it has been updated six times, the
most recent being in 2012.
Rather than an unlimited number of schemes, the reports have concluded that occu-
pational fraud and abuse can be divided into three main categories: asset misappropriation,
corruption, and fraudulent statements. From the three main categories, several distinct
schemes were identified and classified; they are covered in detail herein.
Principles of Fraud Examination begins by providing an understanding of fraud
examination methodology. Thereafter, it sets forth the schemes used by executives,
managers, and employees to commit fraud against their organizations. This 4th edition of
the text also includes a chapter on frauds perpetrated against organizations by individuals
outside their staff—a growing threat for many entities as commerce increasingly crosses
technological and geographical borders.
Each chapter is organized similarly. The major schemes are illustrated and detailed.
Statistics are provided and the schemes are flowcharted. Case studies are provided for
each chapter. Prevention, detection, and investigation strategies are outlined. Finally, the
chapters have essential terms, questions, and discussion issues to help you understand and
retain the material you have learned.
Writing this book is not a solo venture, even though I accept responsibility for
every word—right or wrong. I am deeply indebted to John Warren, JD, CFE. Without his
assistance, this undertaking would have been a nearly impossible task. John is responsible
for major areas, including the statistical information and analysis, writing, and editing.
Special thanks are due to several key ACFE staffers who assisted me: John Gill, Andi
McNeal, Catherine Lofland, Jeanette LeVie, Jim Ratley, and Jenny Carnahan.
For their assistance in helping prepare learning objectives, chapter summaries,
essential terms, and discussion issues and questions, I am indebted to Linda Chase, Scarlett
Farr, Kristy Holtfreter, Robert Holtfreter, Bonita Peterson, Zabiollah Rezaee, Nazik
Roufaiel, and Matthew Samuelson. Mary-Jo Kranacher provided invaluable assistance in
her work on Chapters 10, 11, 12, and 17.
Finally, I must thank my wife, Judy. Since I’ve authored 21 books, she has learned
well that this endeavor is a solitary pursuit. Without her unconditional love, encouragement,
and patience, these pages could not have been written.

Joseph T. Wells
Austin, Texas
March 2013
 Wells ftoc.tex V1 - July 30, 2013 2:46 P.M. Page xi

BRIEF CONTENTS

CHAPTER 1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

CHAPTER 2 SKIMMING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

CHAPTER 3 CASH LARCENY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

CHAPTER 4 BILLING SCHEMES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

CHAPTER 5 CHECK TAMPERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

CHAPTER 6 PAYROLL SCHEMES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155

CHAPTER 7 EXPENSE REIMBURSEMENT SCHEMES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

CHAPTER 8 REGISTER DISBURSEMENT SCHEMES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

CHAPTER 9 NONCASH ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213

CHAPTER 10 CORRUPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239

CHAPTER 11 ACCOUNTING PRINCIPLES AND FRAUD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273

CHAPTER 12 FINANCIAL STATEMENT FRAUD SCHEMES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301

CHAPTER 13 EXTERNAL FRAUD SCHEMES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349

CHAPTER 14 FRAUD RISK ASSESSMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367

CHAPTER 15 CONDUCTING INVESTIGATIONS AND WRITING REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391

CHAPTER 16 INTERVIEWING WITNESSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417

CHAPTER 17 OCCUPATIONAL FRAUD AND ABUSE: THE BIG PICTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443

APPENDIX A ONLINE SOURCES OF INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 457

APPENDIX B SAMPLE CODE OF BUSINESS ETHICS AND CONDUCT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 467

APPENDIX C FRAUD RISK ASSESSMENT TOOL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481

BIBLIOGRAPHY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 511

INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 513

xi
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CONTENTS

CHAPTER 1 INTRODUCTION 3 Cash Larceny Schemes 78

Larceny at the Point of Sale 78
Fraud Examination Methodology 5 Larceny of Receivables 81
Predication 5 Cash Larceny from the Deposit 82
Fraud Theory Approach 5 Case Study: The Ol’ Fake Surprise Audit Gets ’Em Every
Tools Used in Fraud Examinations 6 Time 86
Defining Occupational Fraud and Abuse 8 Proactive Computer Audit Tests for Detecting Cash
Defining Fraud 8 Larceny 87
Defining Abuse 10 Summary 88
Research in Occupational Fraud and Abuse 12 Essential Terms 89
Edwin H. Sutherland 12 Review Questions 89
Donald R. Cressey 13 Discussion Issues 90
Dr. W. Steve Albrecht 21 Endnotes 90
Richard C. Hollinger 24
The 2012 Report to the Nations on Occupational Fraud CHAPTER 4 BILLING SCHEMES 93
and Abuse 30
Summary 45 Case Study: Medical School Treats Fraud and Abuse 93
Essential Terms 46 Overview 95
Review Questions 46 Billing Scheme Data from the ACFE 2011 Global Fraud
Discussion Issues 47 Survey 96
Endnotes 47 Billing Schemes 97
Shell Company Schemes 97
Billing Schemes Involving Nonaccomplice Vendors 104
CHAPTER 2 SKIMMING 51 Pay-and-Return Schemes 104
Case Study: Shy Doc Gave Good Face 51 Overbilling with a Nonaccomplice Vendor’s
Overview 53 Invoices 105
Case Study: Cover Story: Internal Fraud 106
Skimming Data from the ACFE 2011 Global Fraud
Preventing and Detecting Fraudulent Invoices from a
Survey 54
Nonaccomplice Vendor 108
Skimming Schemes 55
Personal Purchases with Company Funds 108
Sales Skimming 55
Personal Purchases through False Invoicing 109
Receivables Skimming 63
Personal Purchases on Credit Cards or Other Company
Case Study: Beverage Man Takes the Plunge 63
Accounts 112
Proactive Computer Audit Tests Detecting Skimming 69
Preventing and Detecting Personal Purchases on Company
Summary 72 Credit Cards and Purchasing Cards 114
Essential Terms 72 Proactive Computer Audit Tests for Detecting Billing
Review Questions 72 Schemes 114
Discussion Issues 73 Summary 117
Endnotes 73 Essential Terms 117
Review Questions 117
CHAPTER 3 CASH LARCENY 75 Discussion Issues 118
Endnotes 118
Case Study: Bank Teller Gets Nabbed for Theft 75
Overview 77 CHAPTER 5 CHECK TAMPERING 121
Cash Larceny Data from the ACFE 2011 Global Fraud
Survey 78 Case Study: A Wolf in Sheep’s Clothing 121

xiii
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xiv CONTENTS

Overview 123 Preventing and Detecting Mischaracterized Expense

Check Tampering Data from the ACFE 2011 Global Reimbursements 184
Fraud Survey 123 Overstated Expense Reimbursements 185
Check Tampering Schemes 123 Fictitious Expense Reimbursement Schemes 187
Forged Maker Schemes 125 Multiple Reimbursement Schemes 189
Forged Endorsement Schemes 130 Case Study: The Extravagant Salesman 190
Altered Payee Schemes 134 Proactive Computer Audit Tests for Detecting Expense
Concealed Check Schemes 138 Reimbursement Schemes 192
Authorized Maker Schemes 139 Summary 193
Concealing Check Tampering 142 Essential Terms 193
The Fraudster Reconciling the Bank Statement 143 Review Questions 193
Case Study: What are Friends For? 144 Discussion Issues 193
Re-Altering Checks 145 Endnotes 194
Falsifying the Disbursements Journal 146
Reissuing Intercepted Checks 146 CHAPTER 8 REGISTER DISBURSEMENT
Bogus Supporting Documents 147 SCHEMES 197
Electronic Payment Tampering 148
Prevention and Detection 148 Case Study: Demotion Sets Fraud in Motion 197
Proactive Computer Audit Tests for Detecting Check Overview 199
Tampering Schemes 149 Register Disbursement Data from the ACFE 2011 Global
Summary 151 Fraud Survey 199
Essential Terms 152 Register Disbursement Schemes 199
Review Questions 152 False Refunds 200
Discussion Issues 153 Case Study: A Silent Crime 202
Endnotes 153 False Voids 204
Concealing Register Disbursements 205
CHAPTER 6 PAYROLL SCHEMES 155
Small Disbursements 206
Destroying Records 206
Case Study: Say Cheese! 155 Preventing and Detecting Register Disbursement
Overview 157 Schemes 207
Payroll Scheme Data from the ACFE 2011 Global Fraud Proactive Computer Audit Tests for Detecting Register
Survey 157 Disbursement Schemes 207
Payroll Schemes 157 Summary 209
Ghost Employees 157 Essential Terms 209
Falsified Hours and Salary 163 Review Questions 209
Commission Schemes 167 Discussion Issues 209
Case Study: The All-American Girl 169 Endnotes 210
Proactive Computer Audit Tests for Detecting Payroll
Fraud 171 CHAPTER 9 NONCASH ASSETS 213
Summary 175
Essential Terms 176 Case Study: Chipping Away at High-Tech Theft 213
Review Questions 176 Overview 215
Discussion Issues 176 Noncash Misappropriation Data from the ACFE 2011
Endnotes 176 Global Fraud Survey 215
Noncash Misappropriation Schemes 217
CHAPTER 7 EXPENSE REIMBURSEMENT Misuse of Noncash Assets 217
SCHEMES 179
Unconcealed Larceny Schemes 218
Asset Requisitions and Transfers 222
Case Study: Frequent Flier’s Fraud Crashes 179 Purchasing and Receiving Schemes 223
Overview 181 False Shipments of Inventory and Other Assets 224
Expense Reimbursement Data from the ACFE 2011 Case Study: Hard Drives and Bad Luck 225
Global Fraud Survey 181 Other Schemes 228
Expense Reimbursement Schemes 181 Concealing Inventory Shrinkage 228
Mischaracterized Expense Reimbursements 182 Altered Inventory Records 229
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CONTENTS xv

Fictitious Sales and Accounts Receivable 229 Why Do People Commit Financial Statement
Write Off Inventory and Other Assets 229 Fraud? 274
Physical Padding 230 How Do People Commit Financial Statement
Preventing and Detecting Thefts of Noncash Tangible Assets Fraud? 275
That are Concealed by Fraudulent Support 230 Conceptual Framework for Financial Reporting 276
Misappropriation of Intangible Assets 231 Economic Entity 277
Misappropriation of Information 231 Going Concern 277
Misappropriation of Securities 232 Monetary Unit 278
Proactive Computer Audit Tests for Detecting Noncash Periodicity 278
Misappropriations 232 Historical Cost 278
Summary 234 Revenue Recognition 278
Essential Terms 235 Matching 278
Review Questions 235 Full Disclosure 278
Discussion Issues 236 Cost-Benefit 279
Endnotes 236 Materiality 279
Industry Practice 279
Conservatism 279
CHAPTER 10 CORRUPTION 239
Relevance and Reliability 280
Case Study: Why is this Furniture Falling Apart? 239 Comparability and Consistency 280
Overview 241 Responsibility for Financial Statements 280
Corruption Data from the ACFE 2011 Global Fraud Users of Financial Statements 281
Survey 241 Types of Financial Statements 281
Corruption Schemes 241 The Sarbanes–Oxley Act of 2002 283
Bribery 244 Public Company Accounting Oversight Board 287
Kickback Schemes 244 Certification Obligations for CEOs and CFOs 289
Overbilling Schemes 246 Standards for Audit Committee Independence 290
Standards for Auditor Independence 291
Bid-Rigging Schemes 249
Enhanced Financial Disclosure Requirements 292
Something of Value 255
Protections for Corporate Whistleblowers under
Illegal Gratuities 256
Sarbanes–Oxley 293
Economic Extortion 256
Enhanced Penalties for White-Collar Crime 294
Conflicts of Interest 256
Financial Statement Fraud Data from the ACFE 2011 Global
Case Study: Working Double Duty 257
Fraud Survey 296
Purchasing Schemes 259 Frequency and Cost 296
Sales Schemes 261 Types of Financial Statement Fraud Schemes 296
Other Conflict of Interest Schemes 262 Summary 297
Preventing and Detecting Conflicts of Interest 263 Essential Terms 297
Anti-Corruption Legislation 263 Review Questions 298
Foreign Corrupt Practices Act 263 Discussion Issues 298
The United Kingdom Bribery Act 265
Scope 266
CHAPTER 12FINANCIAL STATEMENT
Proactive Computer Audit Tests for Detecting FRAUD SCHEMES 301
Corruption 267
Summary 270 Case Study: That Way Lies Madness 301
Essential Terms 270 Overview 304
Review Questions 271 Defining Financial Statement Fraud 305
Discussion Issues 271 Costs of Financial Statement Fraud 305
Endnotes 272 Fictitious Revenues 308
Sales with Conditions 309
CHAPTER 11 ACCOUNTING PRINCIPLES Pressures to Boost Revenues 310
AND FRAUD 273 Red Flags Associated with Fictitious Revenues 310
Timing Differences 311
Fraud in Financial Statements 273 Matching Revenues with Expenses 311
Who Commits Financial Statement Fraud? 274 Premature Revenue Recognition 312
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xvi CONTENTS

Long-Term Contracts 314 Contract Performance Schemes 356

Channel Stuffing 314 Preventing and Detecting Vendor Fraud 357
Recording Expenses in the Wrong Period 315 Threats from Unrelated Third Parties 357
Red Flags Associated with Timing Differences 315 Computer Fraud 358
Case Study: The Importance of Timing 316 Corporate Espionage 361
Concealed Liabilities and Expenses 316 Why Do Companies Resort to Corporate
Liability/Expense Omissions 317 Espionage? 361
Capitalized Expenses 318 Favorite Targets of Corporate Espionage 361
Expensing Capital Expenditures 319 How Spies Obtain Information 362
Returns and Allowances and Warranties 320 Preventing and Detecting Corporate Espionage 363
Red Flags Associated with Concealed Liabilities and Summary 364
Expenses 320 Essential Terms 364
Improper Disclosures 320 Review Questions 365
Liability Omissions 321 Discussion Issues 365
Subsequent Events 321 Endnotes 366
Management Fraud 321
Related-Party Transactions 321 CHAPTER 14 FRAUD RISK ASSESSMENT 367
Accounting Changes 322
Red Flags Associated with Improper Disclosures 323 Overview 367
Improper Asset Valuation 323 What Is Fraud Risk? 367
Inventory Valuation 324 Why Should an Organization Be Concerned about Fraud
Accounts Receivable 325 Risk? 368
Business Combinations 325 Factors That Influence Fraud Risk 368
Fixed Assets 326 What is a Fraud Risk Assessment? 369
Red Flags Associated with Improper Asset What Is the Objective of a Fraud Risk Assessment? 369
Valuation 328 Why Should Organizations Conduct Fraud Risk
Detection of Fraudulent Financial Statement Schemes 329 Assessments? 369
AU 240—Consideration of Fraud in a Financial Statement Improve Communication and Awareness about
Audit 329 Fraud 370
Financial Statement Analysis 337 Identify What Activities Are the Most Vulnerable to
Deterrence of Financial Statement Fraud 342 Fraud 370
Reduce Pressures to Commit Financial Statement Know Who Puts the Organization at the Greatest
Fraud 343 Risk 370
Reduce the Opportunity to Commit Financial Statement Develop Plans to Mitigate Fraud Risk 370
Fraud 343 Develop Techniques to Determine Whether Fraud Has
Reduce Rationalization of Financial Statement Occurred in High-Risk Areas 370
Fraud 343 Assess Internal Controls 370
Case Study: All on the Surface 344 Comply with Regulations and Professional
Summary 346 Standards 371
Essential Terms 346 What Makes a Good Fraud Risk Assessment? 371
Review Questions 347 Collaborative Effort of Management and Auditors 371
Discussion Issues 347 The Right Sponsor 372
Independence and Objectivity of the People Leading and
CHAPTER 13 EXTERNAL FRAUD SCHEMES 349
Conducting the Work 372
A Good Working Knowledge of the Business 372
Case Study: A Computer Hacker Turned Informant . . . Access to People at All Levels of the Organization 373
Turned Hacker 349 Engendered Trust 373
Overview 351 The Ability to Think the Unthinkable 373
Threats from Customers 352 A Plan to Keep It Alive and Relevant 373
Check Fraud 352 Considerations for Developing an Effective Fraud Risk
Credit Card Fraud 353 Assessment 374
Threats from Vendors 354 Packaging It Right 374
How Prevalent Is Vendor Fraud? 355 One Size Does Not Fit All 374
Collusion among Contractors 355 Keeping It Simple 374
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CONTENTS xvii

Preparing the Company for the Fraud Risk Assessment 374 Surveillance 396
Assembling the Right Team to Lead and Conduct the Informants 396
Fraud Risk Assessment 375 ‘‘Dumpster-Diving’’ 396
Determining the Best Techniques to Use in Conducting the Subpoenas 396
Fraud Risk Assessment 375 Search Warrants 397
Obtaining the Sponsor’s Agreement on the Work to Be Voluntary Consent 397
Performed 376 Preserving Documentary Evidence 397
Educating the Organization and Openly Promoting the Chain of Custody 398
Process 376 Preserving the Document 398
Executing the Fraud Risk Assessment 377 Organizing Documentary Evidence 398
Identifying Potential Inherent Fraud Risks 377 Chronologies 399
Assessing the Likelihood of Occurrence of the Identified To-Do Lists 399
Fraud Risks 380 Using Computer Software to Organize Documents and
Assessing the Significance to the Organization of the Other Data 399
Fraud Risks 380 Sources of Information 399
Evaluating Which People and Departments Are Most In-House Sources 400
Likely to Commit Fraud, and Identifying the Methods Public Information 400
They Are Likely to Use 381 Report Writing 408
Identifying and Mapping Existing Preventive and Purpose of the Report 408
Detective Controls to the Relevant Fraud Risks 381 Know the Reader 408
Evaluating Whether the Identified Controls Are Operating Format 409
Effectively and Efficiently 382 Opinions or Conclusions in Report 414
Identifying and Evaluating Residual Fraud Risks Resulting Summary 414
from Ineffective or Nonexistent Controls 382 Essential Terms 414
Addressing the Identified Fraud Risks 382 Review Questions 415
Establishing an Acceptable Level of Risk 382 Discussion Issues 415
Ranking and Prioritizing Risks 382
Responding to Residual Fraud Risks 384 CHAPTER 16 INTERVIEWING WITNESSES 417
Reporting the Results of the Fraud Risk Assessment 385
Overview 417
Considerations When Reporting the Assessment
Introductory Questions 418
Results 385
General Rules for the Introductory Phase of the
Making an Impact with the Fraud Risk Assessment 386
Interview 418
Beginning a Dialogue across the Company 386
Informational Questions 420
Looking for Fraud in High-Risk Areas 386
Closing Questions 423
Holding Responsible Parties Accountable for
Assessment Questions 424
Progress 386
Verbal Clues to Deception 425
Keeping the Assessment Alive and Relevant 386
Nonverbal Clues 426
Monitor Key Controls 387
Typical Attitudes Displayed by Respondents 427
The Fraud Risk Assessment and the Audit Process 387 Admission-Seeking Questions 430
Fraud Risk Assessment Tool 387 Steps in the Admission-Seeking Interview 431
Summary 388 Summary 441
Essential Terms 388 Essential Terms 441
Review Questions 388 Review Questions 442
Discussion Issues 389 Discussion Issues 442
Endnotes 389
CHAPTER 17 OCCUPATIONAL FRAUD AND ABUSE:
CHAPTER 15 CONDUCTING INVESTIGATIONS THE BIG PICTURE 443
AND WRITING REPORTS 391
Defining Abusive Conduct 443
When is an Investigation Necessary? 391 Measuring the Level of Occupational Fraud and Abuse 445
Planning the Investigation 392 The Human Factor 445
Selecting the Investigation Team 392 Understanding Fraud Deterrence 447
Developing Evidence 394 The Impact of Controls 447
Covert Operations 395 The Perception of Detection 447
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xviii CONTENTS

The Corporate Sentencing Guidelines 450 APPENDIX AONLINE SOURCES

Definition of Corporate Sentencing 450 OF INFORMATION 457
Vicarious or Imputed Liability 451
Requirements 451 APPENDIX B SAMPLE CODE OF BUSINESS ETHICS
The Ethical Connection 452 AND CONDUCT 467
Concluding Thoughts 453
Summary 454 APPENDIX C RISK ASSESSMENT TOOL 481

Essential Terms 454

Review Questions 455 BIBLIOGRAPHY 511
Discussion Issues 455
Endnotes 455 INDEX 513
Wells ftoc.tex V2 - September 2, 2013 5:05 P.M. Page xix
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binding, mounting, or covering of books and rollers, &c. in the case
of prints or maps, are allowed. In short, whatever usually appertains
to the sort of articles described, or whatever is necessary for their
safe transmission, may be forwarded through the post at the same
rate charged for the articles themselves.
(g) Among the general restrictions, we find the following:—

No book-packet must exceed two feet in length, width, or

depth.
No book-packet must contain anything inclosed which is sealed
against inspection, nor must there be any letter inclosed, or
anything in the way of writing in the packet of the nature of a
communication, either separate or otherwise. Entries on the first
page of a book, merely stating who sends it, are allowable (and
even desirable in case of failure of delivery) inasmuch as they
are not regarded as of the nature of a letter.
Any packets found with a communication written in it (if the
communication in question cannot be taken out, but forms a
component part of the packet) will be charged with the unpaid
letter postage, and then sent forward.
If a packet be found containing an enclosure, whether sealed or
otherwise, or anything of the shape of a letter, such enclosure
or letter will be taken out and forwarded separately to the
address given on the packet. It is sent forward, of course, as an
 unpaid letter, but, in addition, another single rate is charged.
Thus, if the article taken out of the packet does not exceed half
an ounce in weight, the charge of threepence will be levied on
delivery, while the remainder of the packet, if prepaid, will be
delivered free at the same time.

(h) And lastly. The conveyance of letters being the main business of
the Post-Office, the authorities make distinct stipulations that book-
packets and newspapers must not interfere with the quick and
regular conveyance and delivery of letters. Though it is believed to
be of very rare occurrence, head postmasters are authorized to
delay forwarding any book-packet or newspaper for a period not
exceeding twenty-four hours beyond the ordinary time, if the other
interests of their office demands it.

THE PATTERN-POST.
Arrangements for an inland pattern-post, such as has been in
existence for a short time between this country and France, for the
conveyance of patterns, have just been made. The pattern-post is
now in operation, and must prove beneficial to those engaged in
mercantile pursuits.
(a) At present, parcels of patterns may be forwarded through the
post, subject to the undermentioned regulations, at the following
fixed rates, prepaid with stamps, viz.:—

For a packet 4
under 3d.
weighing oz.
4 and not
" above 8 oz. 6d.
oz. exceeding
8 1s.
" above " 1 lb.
oz. 0d.
1½ 1s.
" above 1 lb. "
lb. 6d.
and so on; threepence being charged for every additional four
ounces.
(b) The pattern must not be of intrinsic value. All articles of a
saleable nature, wearing apparel, medicine, &c. or anything which
may have a value of its own and not necessarily a money value, are
excluded by this rule.
(c) The patterns-packet must not contain any writing inside, except
the address of the manufacturer or trademark, the numbers, or the
prices of the articles sent.
(d) The patterns must be sent in covers open at the ends or sides, in
the same way as book-packets, so as to admit of easy and thorough
examination. Samples of seeds, drugs, and other things of that
character, which cannot be sent in open covers, may be inclosed in
bags of linen, paper, or other material, tied at the neck with string. If
transparent bags are used, as in France, the articles may easily be
seen; but even then the bags must not be tied so that they cannot
easily be opened in their passage through the post.
(e) Articles such as the following are prohibited by this new post,
and few of them can be sent even at the letter-rate of postage, viz.
metal boxes, porcelain or china, fruit, vegetables, bunches of
flowers, cuttings of plants, knives, scissors, needles, pins, pieces of
watch or other machinery, sharp-pointed instruments, samples of
metals or ores, samples in glass bottles, pieces of glass, acids, &c.,
copper or steel-engraving plates, or confectionary of all kinds. In
almost all these cases, the contents of a letter-bag would be in
danger of being damaged or spoiled.

MONEY-ORDERS.
(a) Inland money-orders are obtainable at any of the offices of the
United Kingdom on payment of the following commission:—

On sums not exceeding 2l. for 3d.

 Above 2l. and not exceeding 5l. " 6d.
Above 5l. " 7l. " 9d.
Above 7l. " 10l. " 1s. 0d.

The commission on money-orders made payable in any of the British

Colonies where money-order business is transacted is four times the
sum charged for inland orders, except at Gibraltar and Malta, where
the commission is only three times the British rate.
(b) The amount of any one money-order cannot exceed 10l., nor
less than 1d. No order is allowed to contain a fractional part of a
penny.
(c) Applications for a money-order should always be made in writing.
"Application Forms" are supplied gratuitously at all money-order
offices. The surname, and, at least, the initial of one Christian name
of both the person who sends the order, and the person to whom
the money is to be paid, must always be given. The address of the
remitter of the money should also be given. The following exceptions
are allowed to the above rule:—

(1) If the remitter or payee be a peer or bishop, his ordinary

title is sufficient.
(2) If a firm, the usual designation will suffice—if that
designation consist of names of persons, and not of a company
trading under a title.
(3) Money-orders sent to the Privy Council may be issued
payable to "The Privy Council Office."
(4) When the remitter notifies that the order is to be paid
through a bank, he may withhold the name of the person for
whom it is intended if he chooses; or he may, if he wishes,
substitute a designation instead of a person's name; as, for
example, he may make an order payable, through a bank, to
 "The Cashier of the Bank of England," or "The Publisher of The
Times."

(d) A money-order is always issued on the head office of any town

where there are several money-order offices, except the persons
sending it request that it should be made out for some other
subordinate office.
(e) The sender of any money-order may make his order payable ten
days after date, by simply signing a requisition at the foot of the
order to that effect, and affixing a penny receipt-stamp to his
signature.
(f) An order once made out cannot be cancelled by the officer
issuing it under any circumstances. If the sender should require to
transmit it to a different town than the one he first mentioned, or to
a different name, he must apply to the issuing postmaster, and make
the necessary application on the proper form which will be furnished
to him. Directions on all these subjects are printed on the back of
money-orders.
(g) When an order is presented for payment (not through a bank),
the postmaster is required to see that the signature on the order is
identical with the name to which he is advised to pay the money,
and that the name be given as full in the one case as it is in the
other. If this is so, the person presenting the order is required to
state the name of the party sending it, and should the reply be
correct, the order is paid, unless the postmaster shall have good
reason for believing that the applicant is neither the rightful
claimant, nor deputed by him. If presented through a bank,
however, it is sufficient that the order be receipted by some name,
and that (crossed with the name of the receiving bank) it be
presented by some person known to be in the employment of the
bank. The owner of a money-order is always at liberty to direct, by
crossing it, that an order be paid through a bank, though the sender
should not make it so payable. The ordinary questions are then
dispensed with.
(h) Money-orders, when paid, do not require a receipt-stamp.
(i) Under no circumstance can payment of an order be made on the
day on which it has been issued.
(j) After once paying a money-order, by whomsoever presented, the
Post-Office is not liable to any further claim. Every endeavour, it is
stated, will be made to pay the money to the proper party, or to
some one believed to be delegated by the proper party.
(k) A money-order in the United Kingdom becomes lapsed, if it be
not presented for payment before the end of the second calendar
month after that in which it was issued (thus, if issued in January, it
must be paid before the end of March). A second commission for a
new order will then, after that time, be necessary. Six months are
allowed in the colonies.
If the order be not paid before the end of the twelfth calendar
month after that in which it was issued, all claim to the money is
lost.[208]
(l) In case of the miscarriage or loss of an inland money-order, a
duplicate is granted on a written application (enclosing the amount
of a second commission and the requisite particulars) to the
Controller of the Money-Order Office of England, Scotland, or Ireland
(as the case may be), where the original order was issued. If it be
desired to stop payment of an inland order, a similar application,
with postage-stamps to the amount of a second commission, must
be made to the controller of the money-order office in that part of
the United Kingdom in which the order is payable. All mistakes made
in money-orders can only be rectified in this manner by
correspondence with the chief metropolitan office and by payment of
a second commission. Whenever the mistake is attributable to the
Post-Office, however, and a second commission is rendered
necessary, the officer in fault is called upon to pay it.
Proper printed forms, moreover, are supplied for every case likely to
arise, and full instructions are given on money-orders. In addition,
however, to supplying the proper forms, the postmasters are
required to give every necessary information on the subject of
second or duplicate orders.
(m) No money-order business is transacted at any post-office on
Sundays. On every lawful day, the time for issuing and paying
money-orders is from ten till four at the chief offices in London,
Edinburgh, and Dublin, and from nine till six at provincial offices. On
Saturday nights it is usual to allow two extra hours for this business.

POST-OFFICE SAVINGS BANKS.

We have already explained at some length the origin and ordinary
working of these banks; the following résumé of the distinctive
features of the new plan may therefore suffice:—

(a) Nearly all the money-order offices in the United Kingdom are
now open each working-day for the receipt and payment of
savings-bank accounts.
(b) Deposits of one shilling, or any number of shillings, will be
received, provided the total amount of deposits in any one year
does not exceed 30l., or the total amount standing in one name
does not exceed, exclusive of interest, 150l.
(c) Each depositor, on making the first payment, must give
every necessary particular regarding himself, and sign a
declaration. He will then receive a book (gratis) in which all
entries of payments and withdrawals will be regularly made by
an officer of the Post-Office.
(d) Interest at the rate of 2l. 10s. per cent. is given on all
money deposited.
(e) Secrecy is observed with respect to the names of depositors
in post-office banks, and the amounts of their deposits.
(f) Depositors have direct Government security for the prompt
repayment, with interest, of all their money.
(g) Married women may deposit money in these banks, and
money so deposited will be paid to the depositor, unless her
husband give notice of marriage, in writing, and claim payment
of the deposits.
(h) Money may also be deposited by, or in behalf of, minors.
Unlike some ordinary savings-bank, depositors over seven years
of age are treated here as persons of full age, though minors
under seven cannot withdraw, or have drawn, their deposits
until they attain that age.
(i) Charitable societies and penny-banks may deposit their funds
in the Post-Office banks, but a copy of their rules must, in the
first instance, be sent to the Postmaster-General. Special aid is
given to penny-banks established in connexion with those of the
Post-Office.
(j) Friendly societies, duly certified by the Registrar of these
societies, may also deposit their funds, without limitation or
amount, under the same condition.
(k) A depositor in an old savings-bank may have his money
transferred to the Post-Office banks with the greatest ease. He
has only to apply to the trustees of the old savings-bank for a
certificate of transfer (in the form prescribed by the Act of
Parliament regulating the transactions of these banks, viz. 24
Vict. cap. 14), and he can then offer the certificate to the Post-
Office bank, and it will be received as if it were a cheque. Of
course he can draw out from one bank and pay into the other in
the usual way, but the transfer certificate will save him both
trouble and risk.
(l) A depositor in any one of the Post-Office savings-banks may
continue his payments in any other bank at pleasure without
notice or change of book. The same facilities of withdrawal, as
we have previously shown, are also extended to him.
(m) Additional information may be obtained at any post-office,
or by application to the Controller, Savings-Bank Department,
General Post-Office, London. All applications of this kind, or any
letters on the business of the savings-banks, as well as the
replies thereto, pass and repass free of postage.

MISCELLANEOUS REGULATIONS.
1. Petitions and addresses to Her Majesty, or to members of
either House of Parliament, forwarded for presentation to either
House, may be sent free, provided that they do not weigh more
than two pounds, and are either without covers, or enclosed in
covers open at the ends or sides. They must not contain any
writing of the nature of a letter, and if, upon examination,
anything of the kind be found, the packet is liable to be charged
under the book-post arrangement.
2. Letters on the business of the Post-Office, relating to any of
its numerous branches, may be forwarded to the head offices of
London, Edinburgh, or Dublin, by the public, free of all postage.
Letters for the different departments of the Government in
London may be prepaid, or otherwise, at the option of the
sender.
3. Letters addressed by the public to the district surveyors of
the Post-Office, on postal business, may also be sent without
postage, though all letters addressed to local postmasters
should be prepaid by stamps.
4. It is absolutely forbidden that information respecting letters
passing through the Post-Office should be given to any persons
except those to whom such letters are addressed. Post-Office
officials are strictly prohibited from making known official
information of a private character, or, in fact, any information on
the private affairs of any person which may be gathered from
their correspondence.
5. Letters once posted cannot be returned to the writers under
any pretence whatever—not even to alter the address, or even
the name, on a letter. Further, postmasters have not the power
to delay forwarding, according to the address, any letter, even
though a request to that effect be made on the envelope, or to
them personally, either orally or in writing. Each letter, put into
the Post-Office, is forwarded, according to its address, by the
first mail leaving the place, unless, indeed, it be posted "too
late," when it is not forwarded till the next succeeding mail.
6. Each postmaster is required to display a notice in the most
conspicuous position in his office, giving every necessary
information respecting the time of despatch and receipt of
mails, delivery of letters, hours of attendance, &c. &c.
7. On Sundays there is usually but one delivery of letters, viz. in
the morning, and two hours are allowed during which the public
may purchase postage-stamps, have letters registered, or pay
foreign and colonial letters, &c.; but for the rest of the day all
other duties, so far as the public are concerned, are wholly
suspended. In the General Post-Office in London no attendance
is given to the public. In all the towns of Scotland, and also in
one or two towns in England, no delivery of letters takes place
from door to door, but the public may have them by applying
during the time fixed for attendance at the post-office.
8. In England and Ireland, where, as a rule, letters are delivered
on Sunday mornings, arrangements are made under which any
person may have his letters kept at the post-office till Monday
morning by simply addressing a written request to the
postmaster to that effect. Of course, all the correspondence for
such applicant is kept, even supposing some of it should be
marked "immediate;" and no distinction is allowed. Letters
directed to be kept at the post-office in this way cannot be
delivered from the post-office window, except in the case of
holders of private boxes, who may either call for their letters or
not, as they may think proper. Instructions sent to the
postmasters of towns under this arrangement are binding for
three months, nor can a request for a change be granted
without a week's notice.
9. Any resident, in town or country, can have a private box at
the post-office on payment of an appointed fee. That fee is
generally fixed at a guinea per annum, payable in advance, and
for a period of not less than a year. Private bags in addition are
charged an extra sum.
10. "No postmaster is bound to give change, or is authorized to
demand change; and when money is paid at a post-office,
whether in change or otherwise, no question as to its right
amount, goodness, or weight, can be entertained after it has
left the counter."
11. Except in the case of foreign or colonial letters about to be
prepaid in money, a postmaster or his clerks are not bound to
weigh letters for the public, though they may do so provided
their other duties will allow of it.
12. Postage-stamps or stamped envelopes (the latter to be had
in packets or parts of packets, and charged at an uniform rate,
viz. 2s. and 3d. for a packet of twenty-four envelopes) may be
obtained at any post-office in the United Kingdom at any time
during which the office is open—in most cases, from 7 or 7.30
a.m. till 10 p.m.

13. A licence to sell postage-stamps can be obtained, free of

expense, by any respectable person, on application to the office
of Inland Revenue, Somerset House, London, or (in the
provinces) by application to the district stamp distributor.
14. Every rural messenger is authorized to sell stamps and
embossed envelopes at the same price at which postmasters
sell them; and when, in the country, the rural postman is
applied to for these articles, he must either supply them, or (if
he has none in his possession) must take letters with the
postage in money, and carefully affix stamps to them when he
arrives at the end of his journey.
15. Each postmaster is authorized to purchase postage-stamps
from the public, if not soiled or otherwise damaged, at a fixed
charge of 2½ per cent. Single stamps will not be received, but
those offered must be presented in strips containing at least two
stamps adhering to each other. This arrangement was fixed
upon primarily in order to discourage the transmission of coin by
post.
16. Letter-carriers and rural messengers are prohibited at any
time from distributing letters, newspapers, &c., except such as
have passed through the Post-Office. They are not allowed to
receive any payment beyond the unpaid postage on letters or
newspapers delivered.[209] Further, in delivering letters, they are
not allowed to deviate from the route laid down for them by the
proper authorities.
17. Persons living within the free delivery of any town cannot
obtain their letters at the post-office window, unless they rent a
private box, in which case they may apply for them as often as
a mail arrives. In some cases where there are not frequent
deliveries of letters, persons may apply at the post-office for
their letters arriving by a particular mail after which there is not
an immediate delivery from door to door.
18. Persons having a distinct residence in any town cannot have
their letters addressed to the post-office (except a private box
be taken), and a postmaster is warranted, when such letters
arrive so addressed, to send them out by the first delivery. The
"Poste Restante" is meant for commercial travellers, tourists,
and persons without any settled residence. Letters so addressed
are kept in the office for one month, after which, if they are not
called for, they are returned to the writers through the Dead-
Letter Office. "Ship-letters" in sea-port towns, or letters
addressed to seamen on board ship expected to arrive at these
towns, are kept three months before they are thus dealt with.
19. When any letters, &c. remain undelivered, owing to the
residences of the persons to whom they are addressed not
being known, a list of such addresses is shown in the window of
the post-office to which they may have been sent, during the
time (only one week in these cases) they are allowed to remain
there.
20. Greenwich time is kept at the Post-Office.

LONDON DISTRICT POSTS.

1. The London district comprises all places within a circle of
twelve miles from St. Martin's-le-Grand, including Cheshunt,
Hampton, Hampton Court, Sunbury, and the post towns of
Barnet, Waltham Cross, Romford, Bromley, Croydon, Kingston,
and Hounslow.
2. There are ten postal districts, each of which is treated in
many respects as a separate post town. The names of the
districts are as follows, the initial letter or letters of the name
forming the necessary abbreviation to each, viz.:—East Central,
West Central, Western, South-Western, North-Western,
Northern, North-Eastern, Eastern, South-Eastern, and Southern.
3. The portion of each district within three miles of the General
Post-Office is designated the Town Delivery. Within the town
limits there are eleven deliveries of letters daily, the first or
principal commencing at 7.30 and generally concluded by 9 a.m.;
the last delivery commences at 7.45 p.m.; there being something
like hourly deliveries within the interval. Each town delivery
occupies on an average forty-five minutes. There are seven
despatches daily to the suburban districts.
4. As a general rule, the number of despatches from the
suburban districts is the same as the number of deliveries.
5. Information relative to the time of delivery and the time for
each despatch to the head office, and also from thence to the
provinces, is afforded at each town and suburban receiving-
house. At each of these houses, several hundreds in number,
stamps are sold, letters are registered, and separate boxes are
provided for "London District" and "General Post" letters.

THE "POSTE RESTANTE" AT THE GENERAL

POST-OFFICE.
6. The "Poste Restante" arrangements for London are somewhat
different to those in the provinces; but like the latter they are
meant to provide for strangers and travellers who have no
permanent abode in London,—residents in London not being
allowed the privilege.
7. Letters addressed to "initials" cannot be received; if so
addressed they are returned to their writers through the
Returned Letter-Office.
8. Letters addressed "Post-Office, London," or "Poste Restante,"
are delivered only at the Poste Restante Office, on the south
side of the hall of the General Post-Office, between the hours of
9 a.m. and 5 p.m.
9. All persons applying for letters at the Poste Restante must be
prepared to give the necessary particulars to the clerk on duty,
in order to prevent mistakes, and to insure the delivery of the
letters to the persons to whom they properly belong. If the
applicant be a subject of the United Kingdom (and subjects of
states not issuing passports are regarded as British subjects),
he must be able to state from what place or district he expects
letters, and produce some proof of identification; and if he
sends for his letters the messenger must be supplied with this
information, as well as show a written authority to receive them.
If the applicant be a foreigner, he must produce his passport; or
should he send for his letters, the messenger must take it with
him.
 FOOTNOTES:
[206] The average weight of inland letters is now about a quarter of an ounce; that of
colonial letters about a third of an ounce; of a foreign letter also about a quarter of an
ounce. The average weight of newspapers is about three ounces, and of book-packets
ten ounces.
[207] With charges extremely low, the Post-Office is victimized by all kinds of
craftiness. The dodging of the proper payment is sometimes quite ludicrous. Hundreds
of newspapers, for instance, are annually caught (and we may reasonably assume
that thousands more escape) with short loving messages deftly inscribed between
their paragraphs of type, or letters, different descriptions of light articles, and even
money curiously imbedded in their folds. Almost everybody might tell of some
adventure of this kind in his experience not only before penny-postage, but even after
it.
[208] Moneys accruing to the revenue from lapsed orders are allowed to go into a
fund for assisting officers of the Post-Office to pay their premiums on life assurance
policies. No officer, however, can be assisted to pay for a policy exceeding 300l.
[209] This prohibition does not extend to Christmas gratuities.
 APPENDIX (C).
INFORMATION RELATIVE TO THE APPOINTMENTS IN THE POST-OFFICE SERVICE.

All candidates for appointment in the Post-Office, whether to places in the gift of the
Postmaster-General, or to those in provincial towns in the gift of the respective
postmasters, must pass the stipulated examination prescribed by Government, and which
is conducted under the auspices of the Civil Service Commissioners in London.

I. Candidates for clerkships in the Secretary's Office, London, must pass an

examination on the following subjects, viz.[210]:—
1. Exercise designed to test handwriting and composition.
2. Arithmetic (higher branches, including vulgar and decimal fractions).
3. Precis.

4. A Continental language, French or German, &c.[211]

II. Candidates for general clerkships in the Metropolitan Offices are examined in[210]
—
1. Writing from dictation.
2. Exercise to test orthography and composition.
3. Arithmetic (higher rules).
III. Candidates for the place of letter-carrier, &c.
1. Writing from dictation.
2. Reading manuscript.
3. Arithmetic (elementary).
All officers nominated to places in provincial offices must be examined by the
postmaster, under the auspices of the Civil Service Commissioners, the examination-
papers to be in all cases submitted to the Commissioners for inspection and
judgment.
IV. For clerks, the examination consists in
1. Exercises designed to test handwriting and orthography.
2. Arithmetic.
V. For sorters, letter-carriers, and stampers:—
 1. Writing from dictation.
2. Reading manuscript.
3. Arithmetic (of an easy kind).
VI. For messengers:—
1. Writing their names and addresses.
2. Reading the addresses of letters.
3. Adding a few figures together.

No person under sixteen years of age is eligible for any situation in the Post-Office.
Candidates for clerkships in London must be under twenty-four years of age but not under
seventeen. The stipulated age in the country is from seventeen to twenty-eight.
No one is eligible for an appointment who has been dismissed the Civil Service.
No one is eligible who is connected, directly or indirectly, with the management of an inn
or public-house.
Sorters, stampers, or railway messengers must not be under 5ft. 3in. high in their
stockings.
All officers appointed to the London Office must pass a medical examination before the
medical officer of the Department. A special examination after probation is required from
those appointed to the travelling post-offices. In the country, candidates must provide a
medical certificate to the effect that they enjoy good health.
Sorters and letter-carriers may be promoted to clerkships.
Persons of either sex are eligible for appointment in provincial offices.
Letter-carriers are provided with uniforms.
Post-office officials are assisted, at the rate of about 20 per cent. in payment of premiums
for life assurance. They are also entitled to superannuation allowance, according to their
length of service. Clerks in the General Post-Office are allowed a month's, and sorters,
letter-carriers, &c., a fortnight's, leave of absence each year.
Clerks, sorters, &c. in the provinces are allowed leave of absence for a fortnight in each
year.
Postmasters in the country and officers in the General Post-Offices must give security to
the Postmaster-General for the faithful discharge of their duties, in amounts calculated
according to the responsible nature of the appointment. A guarantee office[212] or two
sureties are taken.
The clerks, &c. in the country offices are required to give security in the same manner to
the postmasters who may have appointed them.
After the preliminary examinations have been passed successfully, each new officer, before
commencing duty, is required to make a declaration before a magistrate, to the effect that
he will not open, or delay, or cause or suffer to be delayed, any letter or packet to which
he may have access. He is then put on probation for a term of six months, after which
period, if able to perform all the duties required of him, he receives a permanent
appointment.
Promotion from class to class in the Post-Office is now, as a rule, regulated by seniority of
service—a much more satisfactory arrangement to the whole body of officers than the
system of promotion by merit which it has just superseded.
Heads of departments, postmasters, and all other officers employed in the Post-Office, are
prohibited by law, under heavy penalties, from voting or interfering in elections for
members of parliament.
No officer of the Post-Office can be compelled to serve as mayor, sheriff, common
councilman, or in any public office, either corporate or parochial; nor can he be compelled
to serve as a juror or in the militia.

FOOTNOTES:
[210] This examination is for third-class clerks only. Vacancies are filled up in the first
and second classes from the third without any further examination.
[211] Clerks in the Solicitor's Office are examined also in conveyancing, and in the
general principles of equity and common law.
[212] A Post-Office Mutual Guarantee Fund, suggested by Mr. Banning, the postmaster
of Liverpool, is in active operation in London, and deserves mention. By means of this
fund many officers of the Post-Office have been relieved from the necessity of
providing personal securities, or of paying yearly sums to some guarantee office. Any
clerk in London who may wish to join deposits the sum of 10s., and letter-carriers 5s.
These deposits are invested in the name of trustees in Government securities. There
are at present nearly 3,000 subscribers, with an invested capital of 900l. Last year
there were no demands at all on the fund except payments to members leaving the
service, who not only draw out their original deposits, but are entitled to receive back
a proportionate amount of interest after defaults have been paid.
 APPENDIX (D).
APPOINTMENTS IN THE CHIEF OFFICE IN LONDON.
(Extracted from the Estimates of 1864-5.)
In all cases marked thus * the present holders of office, or some of them, receive
additional allowances, either on account of length of service, compensation, as paid on
some previous scale of salary, or for extra work.

Salary of Office.
Number
of Designation. Minimum Maximum
Annual
Persons. per per
Increment.
Annum. Annum.

£ £ s. £

1 Postmaster-General — — 2,500

1 Secretary 1,500 after 5 years 2,000

2 Assistant Secretaries* 700 50 0 1,000

Secretary's Office.

1 Chief Clerk 600 25 0 800

Principal Clerk for Foreign and

1 600 25 0 800
Colonial Business*

11 First-class Clerks:—

4 First Section 500 25 0 600

7 Second Section* 400 20 0 500

4 Senior Clerks — — 440

19 Second-class Clerks* 260 15 0 380

16 Third-class Clerks 120 10 0 240

11 Supplementary Clerks 80 5 0 150

 10 Probationary Clerks at 5s. a day

Solicitor's Office.

1 Solicitor — — 1,500

1 Assistant Solicitor — — 800

1 Second-class Clerk 260 15 0 380

2 Third-class Clerks 120 10 0 240

1 Fourth-class Clerk 80 5 0 150

Mail Office.

1 Inspector-General* 600 25 0 800

1 Deputy Inspector-General 500 20 0 600

Principal Clerk of Stationary

1 400 20 0 500
Branch

Principal Clerk of Travelling

1 350 20 0 450
Branch

3 First-class Clerks 260 10 0 350

6 Second-class Clerks* 180 7 10 240

12 Third-class Clerks 80 5 0 150

Inspectors of Mails
5 Allowance of 15s. a day 300 20 0 500
when travelling.

Travelling Post-Office.

8 First-class Clerks 260 10 0 350

15 Second-class Clerks 180 7 10 240

30 Third-class Clerks 80 5 0 150

141 Sorters:—
 10 First-class 40s. a wk. 2 12 50s. a wk.

19 Second-class 32s. a wk. 2 12 38s. a wk.

38 Third-class 25s. a wk. 2 12 30s. a wk.

74 Fourth-class 18s. a wk. 2 12 25s. a wk.

Clerks in this office are also

allowed travelling
allowances at the rate of
5s. a trip; sorters, 3s. a trip

Supervisor of Mails' Bag

1 — — 290
Apparatus

Receiver and Accountant-

General's Office.

Receiver and Accountant-

1 600 25 0 800
General*

1 Chief Examiner* 475 20 0 575

1 Cashier* 475 20 0 575

1 Principal Book-keeper* 425 20 0 525

11 First Class Clerks:—

5 First Section 310 15 0 400

6 Second Section* 260 10 0 350

17 Second-class Clerks* 180 7 10 240

22 Third-class Clerks 80 5 0 150

Money-Order Office.

1 Controller* 500 25 0 750

1 Chief Clerk* 400 20 0 550

1 Examiner* 375 15 0 450

 1 Book-keeper* 375 15 0 450

13 First-class Clerks:—

4 First Section 365 15 0 400

9 Second Section 260 10 0 350

52 Second-class Clerks 180 7 10 240

55 Third-class Clerks 80 5 0 150

6 Probationary Clerks 5s. per day

Circulation Department.

1 Controller* 600 25 0 800

1 Vice-Controller* 500 20 0 600

3 Sub-Controllers 450 20 0 600

16 Deputy Controllers 350 15 0 500

40 First-class Clerks* 260 10 0 350

80 Second-class Clerks* 180 7 10 240

118 Third-class Clerks* 80 5 0 150

First-class Inspectors of Letter-

7 210 10 0 300
carriers

15 Second-class ditto 150 7 10 200

20 Third-class ditto 110 5 10 145

2,356 Sorters, Messengers, &c. viz.—

Sorters 100 1st Class 40s. a wk. 2 12 50s. a wk.

Sorters 450 2d Class 24s. a wk. 2 12 38s. a wk.

Messengers 20 2d Class 21s. a wk. 2 12 40s. a wk.

Stampers 60 1st Class 28s. a wk. 2 12 35s. a wk.

Stampers 199 2d Class 21s. a wk. 2 12 27s. a wk.

 Letter-carriers 330 1st Class* 26s. a wk. 2 12 30s. a wk.

Letter-carriers 962 2d Class* 20s. a wk. 2 12 25s. a wk.

Surveyors' Department.

13 Surveyors* 500 25 0 700

32 Surveyors' Clerks:—

13 First Class* 300 20 0 400

19 Second Class* 200 10 0 300

13 Stationary Clerks 80 5 0 150

The surveyors have travelling allowances at the rate of 20s. per diem; surveyors' clerks,
15s. per diem; clerks in charge, 10s. and 7s. per diem. The whole are also allowed actual
expenses of locomotion.

PRINCIPAL APPOINTMENTS IN THE CHIEF OFFICES OF

DUBLIN AND EDINBURGH.
(Extracted from the Estimates of 1864-5.)

Salary of Office.
Number
of Designation. Minimum Maximum
Annual
Persons. per per
Increment.
Annum. Annum.

DUBLIN £ £ s. £

1 Secretary 700 50 0 1,000

1 Chief Clerk 500 20 0 600

2 First-class Clerks 300 15 0 400

4 Second-class Clerks 140 10 0 300

1 Solicitor — — 1,000

1 Accountant* 500 20 0 600

 1 Examiner* 325 20 0 425

1 Controller of Sorting Office 400 20 0 500

4 Deputy Controllers 280 10 0 350

General Body of Clerks.

13 First-class Clerks* 200 10 0 300

39 Second-class Clerks 125 7 10 180

14 Supplementary Clerks 70 5 0 120

1 Inspector of Letter-carriers 125 7 10 200

1 Medical Officer — — 200

EDINBURGH.

1 Secretary 700 50 0 1,000

1 Chief Clerk 500 20 0 600

2 First-class Clerks 300 15 0 400

3 Second-class Clerks 140 10 0 300

1 Solicitor — — 400

1 Accountant* 500 20 0 600

1 Examiner* 325 20 0 425

1 Controller of Sorting Office 450 20 0 550

3 Deputy Controllers 280 10 0 350

1 Inspector of Letter-carriers 125 7 10 200

1 Medical Officer — — 150

General Body of Clerks.

12 First-class Clerks 200 10 0 300

 30 Second-class Clerks 125 7 10 180

Probationary Clerks, 5s. a

9
day

APPOINTMENTS, WITH SALARIES, OF THE FIVE PRINCIPAL

PROVINCIAL ESTABLISHMENTS IN ENGLAND AND
SCOTLAND.
(Extracted from the Estimates of 1864-5.)

Salary of Office.
Number Poundage
of Designations. allowed. Minimum Maximum
[213] Annual
Persons. per per
Increment.
Annum. Annum.

Liverpool Office. £ £ £ s. £

1 Postmaster 730 — — 1,000

1 Chief Clerk — 400 20 0 500

2 Principal Clerks — 200 10 0 300

Controller of
1 — 300 10 0 400
Sorting Office

Assistant
5 — 200 5 0 250
Controllers

Inspector of
1 — 125 7 10 200
Letter-carriers

Assistant
2 — 80 5 0 120
Inspectors

8 First-class Clerks — 150 5 0 200

Second-class
16 — 100 4 0 140
Clerks

15 Third-class Clerks — 60 3 0 100

23 First-class Sorters — 31s. a wk. 2 12 35s. a wk.

 Second-class
23 — 26s. a wk. 2 12 30s. a wk.
Sorters

46 Third-class Sorters — 22s. a wk. 1 6 25s. a wk.

Fourth-class
93 — 18s. a wk. 1 6 21s. a wk.
Sorters

Allowance to a
— — — 90l. a-year.
Medical Officer

Manchester Office.

1 Postmaster 790 — — 700

1 Chief Clerk — — — 450

5 Principal Clerks — 200 7 10 250

5 First-class Clerks — 150 5 0 200

Second-class
10 — 100 5 0 150
Clerks

Medical Officer — — — 80

Inspector of
1 — 150 7 10 200
Letter-carriers

2 Assistant ditto — 80 5 0 120

Sorting Clerks:—

20 First-class — 31s. a wk. 3 18 38s. a wk.

37 Second-class — 21s. a wk. 2 12 30s. a wk.

116 Letter Carriers — 18s. a wk. 1 6 23s. a wk.

Glasgow Office.

1 Postmaster 673 — — 700

Controller of
1 — 200 10 0 300
Sorting Office
 5 First-class Clerks — 150 5 0 200

Second-class
5 — 100 4 0 140
Clerks

Supplementary
10 60 3 0 100
Clerks

Inspector of
1 — 125 7 0 200
Letter-carriers

Assistant
Inspectorsof — 80 5 0 120
Letter-carriers

10 First-class Sorters — 31s. a wk. 2 12 35s. a wk.

Second-class
24 — 26s. a wk. 2 12 30s. a wk.
Sorters

29 Third-class Sorters — 22s. a wk. 1 6 25s. a wk.

Fourth-class
66 — 18s. a wk. 1 6 21s. a wk.
Sorters

Auxiliary Letter-
97 — — — 6s. a wk.
carriers

Allowance to
— — — 90
Medical Officer

Birmingham Office.

1 Postmaster 500 — — 700

3 Chief Clerks — 150 5 0 230

2 Clerks — 150 5 0 200

12 Ditto — 60 5 0 140

Inspector of
1 — 125 7 10 180
Letter-carriers

Assistant Inspector
1 of Letter- — 80 5 0 120
carriers
25 Sorters — 21s. a wk. 2 10 35s. a wk.

Third-class Letter-
20 — 22s. a wk. 1 6 25s. a wk.
carriers

Fourth-class
48 — 18s. a wk. 1 6 21s. a wk.
Letter-carriers

Temporary Letter-
6 — — — 18s. a wk.
carriers

10s. 6d. a
5 Auxiliaries — — —
wk.

1 Medical Officer — — — 60l. a year.

Bristol Office.

1 Postmaster 325 — — 600

1 Chief Clerk — 200 10 0 300

2 First-class Clerks — 150 5 0 200

Second-class
7 — 100 4 0 140
Clerks

Supplementary
8 — 60 3 0 100
Clerks

Inspector of
1 — 110 5 0 140
Letter-Carriers

9 First-class Sorters — 27s. a wk. 2 12 33s. a wk.

Second-class
12 — 23s. a wk. 1 6 26s. a wk.
Sorters

10 Third-class Sorters — 19s. a wk. 1 6 22s. a wk.

Fourth-class
24 — 16s. a wk. 1 6 18s. a wk.
Sorters

10s. 6d. a
28 Auxiliaries — — —
wk.

1 Medical Officer — — — 50l. a year.

INFORMATION RESPECTING OTHER PRINCIPAL PROVINCIAL
POST OFFICES.

Total
Salary Staff Other Expenses
Name of Poundage
of of Subordinate of
Town. allowed.
Postmaster. Clerks. Officers. Establishment
for 1864-5.

£ £ £

Bath 450 155 7 80 4,997

Brighton 500 210 8 36 3,357

Birkenhead 350 74 6 30 2,652

Carlisle 300 68 6 45 3,138

Derby 300 110 5 42 3,449

Exeter 500 145 13 104 6,185

Gloucester 300 72 6 29 2,404

Hull 450 200 15 63 4,887

Leeds 450 280 12 86 7,265

Newcastle-
450 240 9 54 4,318
on-Tyne

Norwich 380 118 6 68 4,453

Oxford 331 72 8 23 2,362

Plymouth 332 105 6 37 2,648

Portsmouth 360 118 5 23 2,104

Preston 300 105 6 43 2,995

Sheffield 400 215 17 57 4,708

Shrewsbury 400 95 8 68 4,830

Southampton 450 160 8 52 4,415

Worcester 320 70 7 40 2,514

York 400 125 11 70 5,059

Belfast 340 116 6 47 3,407

Cork 340 105 6 39 2,719

Aberdeen 400 146 10 55 3,545

Dundee 230 109 5 30 2,038

Greenock 300 100 7 40 2,692

FOOTNOTES:
[213] On the sale of postage-stamps.
 APPENDIX (E).
Amount of Postage (including Postage-Stamps sold by the Post-Office and by the Office of
Inland Revenue) during the years 1861 and 1862 at those Towns in the United Kingdom
where the amount was largest.

1861 1862

ENGLAND. £ £

Bath 17,795 18,433

Birmingham 48,818 50,272

Bradford, Yorkshire 17,098 19,640

Brighton 21,945 22,579

Bristol 33,865 35,720

Cheltenham 11,834 12,315

Exeter 16,334 16,739

Hull 20,561 20,819

Leeds 30,641 32,736

Leicester 10,420 11,238

Liverpool 115,268 117,676

London 979,662[214] 1,033,268[215]

Manchester 102,263 98,650

Newcastle-on-Tyne 24,844 25,998

Norwich 12,740 12,997

Nottingham 12,237 13,376

Plymouth 11,520 11,493

Sheffield 20,364 21,188

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