No business owner wants to find out that one of their employees is stealing, but it happens all too often. Hopefully other businesses can learn from the unfortunate situation one organization experienced recently when a former accounting assistant pled guilty to embezzling more $70,000 in rent payments and was sentenced to five months in prison.
So how could this happen? Since the ex-employee was in charge of not only collecting the rent payments but recording them in the accounting system, putting the payments in the cash box and depositing the money at the bank, they were able to cover up the theft fairly easily. The accounting assistant reduced the amount collected in the accounting software to match the bank deposit, and she kept the difference. She stole 181 tenant rent payments between 2010 and 2015, primarily paid in cash. The fraud was only discovered when another employee noticed two rent payments were missing.
Some of the lessons that any business can take away from this case of employee fraud include:
- Segregation of duties. No one person should be in charge of collecting, recording and depositing payments. In this case, one person handled every step of the rent payment process, providing the opportunity for someone motivated enough to commit fraud.
- Surprise audits. Make it know that at your company, you hold unscheduled audits. When people fear getting caught it decreases their motivation to act, even if the opportunity may exist.
- Fraud training. Have training for all employees that includes fraud red flags. In this case, another employee noticed the missing rent payments, but there may have been other red flags early on that if identified could have stopped the fraud much sooner. For example, the perpetrator not taking vacation, living beyond their means, and becoming secretive or territorial.
Not all employees will steal, but it is important to create a work environment that acknowledges the possibility. Build a system of internal controls – checks and balances that not only protect the company from fraud, but that shield the employees from their own opportunistic tendencies. Contact Mike Rosten, CPA, CFE at PBTK if you would like help strengthening your internal controls or if you suspect an employee of fraud and need a forensic investigation.