It seems to be getting harder and harder to trust people, especially those in executive positions. Recent news reports describe yet another story about trust being violated by a high-ranking employee (Landa, Jeff. “Former Construction Union Leader Pleads Guilty to Embezzlement.” Los Angeles Times 27 Mar. 2017: Print.) Using his position as secretary-treasurer and business manager of the Bakersfield office of a construction workers union, Mr. Padilla was able to embezzle over $160,000 from the organization between September 2012 and December 2014 by writing unauthorized checks that were signature-stamped with the union president’s signature. In addition, he used his union-issued credit cards to make over 200 personal purchases.
When an executive is the one committing the fraud or embezzlement, it is a little harder to control or catch, but not impossible.
Here are some tips to help prevent fraud committed by a high-ranking company employee:
- Segregation of duties. No one person should have the ability to approve expenditures and write checks, no matter what their company ranking or position.
- Review of all credit card accounts. Someone other than the cardholder should review all credit card charges on a monthly basis. Any unknown charges need to be questioned. If the executive holds a company card, another person should receive the credit card statements.
- Request receipts for all charges on company credit cards. It may be necessary to request that all charges to the credit card have a receipt. This may seem over the top, but it will let the cardholders know that if there is not a receipt, they may be responsible for the charge.
It is always difficult to put internal controls in place when those who are in control are breaking the rules or bypassing the controls.
For more information on preventing fraud in your organization, contact Mike Rosten, CPA, CFE.