Lessons Learned from an Ex-Cashier Who Must Pay Back $12.9 Million in Embezzlement Case

Employers want to trust their employees, especially those in key positions who are tenured with the company. But yet again, the news brings us another story of how employees break that trust. This recent article reports that a long time employee used her position to embezzle company money to live a lavish lifestyle and allow her husband to retire. Cynthia Mills was a cashier and treasury specialist for a manufacturing company and was in charge of depositing checks and handling wire transfers. To accomplish her scheme, she set up a bank account in the name of a fake company and wired money into that account. It seems that her scheme was so well thought out that even the company internal auditors missed it.

What lessons can we learn? What controls may have prevented her ability to steal millions from her employer? These key components of fraud detection were missing:

  • Segregation of duties. No one person should have the ability to approve and set up new vendors and transfer money, no matter what their company ranking or position. At least two people should be involved in the process.
  • 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 approve and set up vendors.
  • Checks and balances. All employees and departments should have checks and balances, no exceptions. 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.

Long-time 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 for a fraud checkup checklist.


Financial Fridays (Aired December 12, 2014)

Friday, December 12th at 3 pm on KLAV 1230 AM we had a great line up of guests for our weekly Financial Fridays show. Mike Rosten, the Principal who leads PBTK’s forensic accounting and litigation support practice, was the guest-host this week. Listen to the show.

Our guests included:

Kelley Long, CPA is a sought-after personal finance expert who is recognized for her gift of breaking complicated financial concepts down into simple terms. She delights in helping American take small but effective steps toward gaining control of their money and their lives and uses this expertise to inform her work as the Director of Communications and Marketing for a Chicago-based accounting firm.

Clare K. Levison is a certified public accountant and national financial literacy spokesperson for the American Institute of Certified Public Accountants (AICPA). She has appeared on major radio and television networks across the country and has served as a member of the Virginia Society of Certified Public Accountants (VSCPA) Board of Directors. She was named one of the 2010 Top Five CPAs Under Thirty-Five by the VSCPA. Clare has more than a decade of corporate accounting experience and is also an active volunteer, serving as PTA president, Girl Scout leader, and Sunday school teacher. She lives in Blacksburg, Virginia, with her husband and two daughters.

John Restrepo is the Principal of RCG Economics in Las Vegas, Nevada, where he directs the firm’s economic and financial consulting activities. For eight years, John was the Director of Financial Advisory Services in Las Vegas for Coopers & Lybrand LLP. Before joining Coopers & Lybrand in 1990, he managed the Las Vegas office of Mountain West Research, a regional economics firm based in Phoenix, Arizona. Prior to Mountain West, he was the Chief Operating Officer of a 40-person regional planning and civil engineering firm based in New Orleans. For 28 years, John has analyzed regional economic and real estate trends in a number of markets, including Nevada, Arizona, California, Texas, and the Southeast U.S. His clients include some of the most prominent private and public organizations in Nevada concerned with development and growth.

Mark Stark, CEO/Owner of Berkshire Hathaway Home Services, was named Prudential Real Estate’s 2013 Broker of the Year at its annual convention in Las Vegas.

If you have any questions about anything discussed on the show, or if you would like to be a guest, please contact Financial Fridays host Scott Taylor at staylor@pbtk.com or 702-384-1120. Scott W. Taylor’s tax practice focuses on services for a wide range of clients including real estate partnerships, limited liability companies, large and small closely-held corporations and not-for-profit organizations. He started with PBTK in 1992 and was made a Shareholder in January 2005. In addition to his tax work, he also provides services for business consulting, deal structuring, receivership and litigation support services.


MasterCard uses geolocation to make sure you are you

If someone steals your credit card, they’d probably have little trouble racking up a hefty bar tab or buying a new TV with the plastic. But MasterCard MA+0.01% is experimenting with a new technology to change that by using your smartphone’s geolocation to verify that you are in the same location as your credit card at the time of sale.

“We can actually make sure that when we see a transaction we can confirm you are actually where you say you are,” says James Davlouros, vice president of global strategic alliances at MasterCard. Currently, MasterCard’s pilot program is available in Europe, with a commercial launch scheduled later this year in North America, Europe, and Asia.

Read more at The Wall Street Journal

What’s your Fraud IQ?

From Accounting Today

Fraud happens in companies of all sizes, in all industries, and in all countries. Given enough time, it will almost certainly happen in a company that does not enact proactive fraud prevention measures. Do you know what initiatives are most effective in deterring potential fraudsters? Are your clients among those who are left unguarded? How well-versed are you in protecting organizational resources from the hands of would-be fraudsters? Take this quiz and find out.

1. Generally speaking, what is the primary objective of a fraud risk assessment?

a. To provide an estimate of an organization’s fraud losses.

b. To help an organization’s leadership identify areas most vulnerable to fraud.

c. To establish the guilt or innocence of an employee suspected of committing fraud.

d. To assess the design and effectiveness of internal controls over financial reporting.

Continue reading at Accounting Today.

Lessons Learned from a Columbus Schools Fraud Investigation

After an 18-month investigation that ended in January, Ohio State Auditor Dave Yosts discovered that some Columbus school employees had been deceiving state and federal education departments by altering student data files in order to boost the district’s performance.

Yosts stated that the problem boiled down to the fact that those in charge “helped create the environment where administration felt free to play fast and loose with the data, contrary to Ohio law.”

In order to prevent an entitled environment from taking ahold of your company, apply these three key lessons:
1.Tone starts at the top. If top executives or administrators do not follow the rules then others will follow their example. It is important employees know that fraud or other financial misconduct will not be tolerated.
2.Checks and balances. No one person should have full control over any aspect of a system. In the case of the Columbus schools, the Principal may have covered up the data scrubbing but there could have been other district supervisors or boards to monitor her actions.
3.Ethical goals. Set goals that are realistic and can be achieved in an ethical way. Creating an environment where it is difficult to achieve success can set the stage for fraudulent behavior. It essentially creates one element of the fraud triangle, which is motive.

Learn more from Bill Bush and Jennifer Smith Richards article at http://www.dispatch.com/content/stories/local/2014/01/28/1-columbus-school-audit-yost.html.

Lack of Checks and Balances Create Opportunities for Fraud

By Tricia Cook, CFE

An Indiana business man recently pled guilty to fraud, acknowledging that he abused his position as board chairman and head of the audit committee at an Iowa-based manufacturer of equipment for all-terrain vehicles and golf carts.

Between 2009 and his resignation in 2010,  he convinced the company to give him control of more than $507,000 after promising he would use it for a plan to take the company private through a stock buyback. In reality, he used the money to pay for his personal credit card bills and mortgage payments on one of his two homes.

To cover up the scheme, the executive lied to the board and the company’s auditor and created phony bank and brokerage account statements. He also signed a false statement filed with the SEC.

Red Flags

There were red flags about this scenario that should have raised concern prior to the fraud discovery. Paying attention to certain details like a change in lifestyle, an unwillingness to take vacation or to change roles might be clues that one of your employees may be deceiving you.  Take a close second look to make sure everything is in order, especially if any of these conditions exist within your company:

  • Red Flag 1: His position as board chairman and head of the audit committee goes contrary to the concept of always having proper checks and balances between departments.  By giving someone this much control, the board and audit committee opened themselves to risk.  The executive should not have been the head decision maker in addition to having control over the funds and the audit function.
  • Red Flag 2: The board gave him control of more than $507,000 after promising he would use it for a plan to take the company private through a stock buyback, but it seems that was the end of the story. The board should have required a plan and a way to track the money.  Additionally, there should have been some type of reporting to check on his progress each month.
  • Red Flag 3: He created phony bank and brokerage account statements to cover up his fraud, but if there had been a segregation of duties, it could have been prevented. With someone else in charge of opening the bank and brokerage statements and then reconciling them, this executive would not have had the access to create false documents.

If you have concerns over your company’s internal controls and would like a free copy of the Fraud Check Up, please contact me at tcook@pbtk.com.

Source: http://www.ibj.com/indiana-businessman-admits-guilt-in-2-fraud-plots/PARAMS/article/37571

What is Your Fraud IQ?

From Accounting Today:

Fraud is not an accounting problem or an internal control problem; it is a human problem. Not even the strongest system of controls can eliminate all risk of organizations’ being defrauded by employees who are sufficiently motivated to find loopholes, ways to override controls, or opportunities for collusion. While most accountants are familiar with methods for identifying manipulated accounting data, effectively fighting fraud involves going further and understanding the human elements involved. Such knowledge can help CPAs design or assess internal control initiatives, recognize fraud red flags during professional engagements, and identify where organizations are most at risk. Take this quiz to see whether your knowledge of fraudsters’ mindsets, characteristics, and behaviors is sufficiently honed to help you recognize the warning signs of fraud.

1. Research has shown that the most common reason that CFOs commit financial statement fraud is:

a. To cover up embezzlement or other fraud schemes.

b. Pressure from CEOs.

c. To increase the value of their own investments in company stock.

d. To hide their own errors or poor judgments that led to weak financial performance.

To read the full article, click here.