When times are tough, shouldn’t everyone do their part to help out? Unfortunately, employees motivated to commit fraud jump on any opportunity to take advantage of lax financial controls within an organization. In a county in West Virginia, the school district had faced a budget deficit for many years. More than 70 employees had been laid off as the school administration struggled to find ways to balance the budget.
To add insult to injury, a recent news report revealed that school officials are now investigating a possible employee embezzlement scheme that has siphoned off more than $20,000 from the district, the biggest embezzlement case in Boone County, West Virginia, in more than a decade. The Transportation Director and a school mechanic are accused of purchasing things for personal and business use with fraudulent invoices and charging them to the school transportation department over a two-year period.
How could these employees have gotten away with their scheme for so long? This happens across the country as trusted employees find themselves caught in a fraud triangle, with the opportunity, pressure and rationalization to steal from their employer.
Here are some takeaways we can learn from this employee embezzlement story to help your organization avoid a similar situation:
- Vendor background checks. Know who your vendors are before doing business with them.
- Review invoices. Implement procedures for reviewing and approving invoices. Different people should receive and pay the invoices.
- Checks and balances. Even directors should have checks and balances. Ironically, the most trusted, high-ranking and long-time employees are typically the ones who commit fraud.
- Surprise Audits. Perform surprise audits and let employees know that this is standard procedure. Fear of being discovered may effectively neutralize the opportunity component of the fraud triangle, preventing embezzlement schemes from happening in the first place.
- Tone at the Top. Implement policy and procedures that everyone follows, starting at the top. Even the highest level official should be open and transparent about financial matters, allowing others to check and monitor their work.
High-ranking employees are trusted, but sometimes they abuse that trust and commit fraud. For more information on preventing fraud in your organization, contact Mike Rosten, CPA, CFE.