Business embezzlement is everywhere
Bob Ainsworth
It would never happen here. Our employees are good people. I trust them implicitly. Besides, it's only big companies that get scammed. And on and on go the reasons for not taking even simple steps.
Do these excuses hold up?
While working as a certified public accountant, our audit team uncovered a payroll fraud at a local company paying hourly wages. The payroll clerk added hours to her husband's and son's time cards and then paid the doctored amounts. We caught her by looking for any employees with her last name and verifying the paid hours to the original time cards hours.
In my 30 years as a corporate controller, a number of embezzlements crossed my path. A revenue inflation scheme came to light that generated large, unearned bonuses for a senior executive and the sales manager. Another case occurred when a controller stole cash sales and then doctored the books to hide the theft so he could pay for a home improvement. The final case was a drug user wiring money to her and a daughter's account. She'd been given complete authority over money transactions by the CEO. He believed his sole job was generating revenue and refused to look at bank statements.
While teaching grad school for more than 10 years, I asked students to describe a fraud they personally knew about. The best one, in my view, involved a bank manager who never took vacation, gladly covered other employees' hours and seemingly checked every detail of his branch's operations. It turns out he was looting unused home equity lines and grabbing the customers' statements before they were mailed.
Those examples are from a very small universe of people.
What about the town business manager that almost bankrupt the town to pay for her riding stable? Or the local museum CFO who stole money using credit cards for her and her children? Or the project manager who submitted fake invoices for work on one of his construction projects? Or the brother-in-law who nearly bankrupt a famous comedian? Or the CFO who stole money by writing checks to herself, disabled the company president's phone so the bank couldn't warn him about overdrafts, then escaped with her computer and her files after disabling the company security cameras?
The Association of Certified Fraud Examiners issues an annual Report to the Nations on fraud cases throughout the world that will make you never trust anyone! Covering 2014 and most of 2015, they reported $6.3 billion in fraud losses with the average loss of $150,000. Losses were the same for large and small companies, but smaller companies were hurt more because they couldn't financially absorb the loss. Those small companies were less likely to take steps to reduce the risk of fraud.
The most likely embezzler is a female who works in accounting and acts alone.
What's a company of any size to do?
1. Make every accounting person take a vacation and have someone else do their work.
2. Request a credit check on every employee. If they can't handle their own money, they might like to get their hands on yours.
3. Never let the same person deposit cash and write and sign checks or create bank transfers.
4. Have all bank statements and credit card statements go to a non-financial executive for review.
5. Verify all resume information on new hires. Liars keep on lying.
6. Set an example of honesty by treating customers fairly.
7. Treat employees with bonuses and commissions fairly.
8. Have an audit by a CPA. If you can't afford one, have a CPA conduct an internal control review.
9. Have a policy showing honesty and fairness are important parts of the company culture.
10. Never conduct business in cash.
11. Limit vendor gifts to $25.
12. Look at employee lifestyles for exorbitant travel or spending or continual borrowing from fellow employees.
13. Watch for the 4 D's: divorce, debt, drugs and disgruntlement.
14. Make sure all signed checks are mailed out immediately and not returned to the check preparer.
15. Review the payroll each pay period for changes such as new employees, salary changes and departed employees.
Bob Ainsworth, CPA is the former chief financial officer of New England Business Media, the parent company of Worcester Business Journal. He is the author of “A Fraud Of The Ponzi Kind,” a crime thriller featuring a fraud detective, Harold A. Bradford III.
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