Lesson Learned from an Accounting Assistant Sentenced to Prison

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.

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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.

School Employees Embezzle Funds Even During Hard Financial Times: What Can You Learn for Your Organization?

Stealing company money.jpgWhen 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.

Employee Embezzlement – Is the Scrap worth it?

Scrap metal.jpgAll employers want to trust their employees, but once again we see a case of the employees giving employers a reason not to trust them. In this recent article (Four indicted with embezzling $380,000, Stacy Hairston, The Franklin News-Post, March 10, 2017), we read of  four men indicted on a total of 194 felony embezzlement charges.  Their scheme, which netted approximately $2,000 per charge, was uncovered when the company they worked for contacted the Franklin County Sheriff’s Office to look into discrepancies on deliveries made to a scrap company.  The investigation revealed evidence that the men would use company trucks to deliver the scrap, but receive checks for the scrap in their personal names, not that of the company.  The investigation also revealed that the scheme had been going on since 2013.  That’s a lot of scrap!

Luckily, the owner suspected that not all the scrap generated was being properly accounted for, resulting in either unexplained shrinkage of inventory or possible diversion of cash receipts.

Some lessons that can be learned from this case, and tips to prevent something similar from happening at your company, follow:

    • Only authorized personnel should be allowed to remove and deliver scrap. The person transporting the goods should not be in charge of selling them. Also, the duties involving buying and selling should be segregated.
  • Request signed delivery receipt from the scrap company. This would enable both parties to a scrap transaction to better control the purchase and sale, respectively.
  • Check and sales receipt returned to office, the same day. There is no reason for lost/misplaced checks or sales receipts, especially when affixing responsibility the day of each expected transaction.

 

  • Make employees accountable for company property by establishing expectations. Require that personnel record the date, time, employee and approximate weight of scrap taken to the scrap company and that they will be returning with sales receipts and/or checks received.
  • Keep a record of company property to be disposed of as scrap. Keep a control listing of those items identified for sale as scrap, based upon pre-established approvals. This could be more difficult based upon the definition of inventory versus parts or components. Controlling components may have less perceived benefits, particularly if leftover pieces and parts separated from bigger inventory items have only minor value.
  • Keep a designated area to track items waiting to be sold as scrap. By keeping all the scrap in one area, it is easier to gauge the quantity and enhance control efforts.

Diverting a revenue stream is not a common fraud scheme, but it does happen. In this case, the scrap was cumulatively significant in amount and the employees took advantage of the lack of company controls to make some money on the side.  If you think your company may be facing a similar revenue diversion scheme, contact Certified Fraud Examiner and CPA Mike Rosten.

Lessons Learned from $8.6 Million Executive Embezzlement

According to the recent 2016 Report to the Nation by the Association of Certified Fraud Examiners (ACFE), the median loss in cases were the fraud was committed by owners/executives was $703,000. In a recent article, a former MillerCoors marketing executive pled guilty to helping steal more than $8.6 million by billing for events and promotions that never took place or at inflated rates.

Lessons Learned

What can your business do differently to help avoid these cases of high ranking executive or employee fraud?

  • Vendor checks. Know who your vendors are before doing business with them.
  • Segregation of duties. Keep the duties of entering vendors separate from entering invoices.
  • Review invoices. Implement procedures for reviewing and approving invoices.
  • Checks and balances. Even executives should have checks and balances.
  • Surprise Audits. Perform surprise audits.
  • Tone at the Top. Implement policy and procedures that everyone follows, starting at the top.

Executives have a lot of power and sometimes that power leads to trouble. If no one is watching them, they can do a lot of damage. For more information on preventing fraud in your organization, contact Mike Rosten, CPA, CFE.

Report: Nevada among top states for mortgage fraud

Mortgage fraud is rising nationally and remains more active in Nevada than in almost every other state, a new report shows.

Some 74 percent of U.S. home loans last year involved some kind of fraud or misrepresentation on the application, up from 69 percent in 2012 and 61 percent in 2011, according to LexisNexis Risk Solutions.

Continue reading at VegasInc.com.

When it Comes to Fraud, Prevention Means Education

Earlier this year, an employee of the State of Vermont tried to make a personal purchase online using a check issued from the State. The employee, the sole liability claims adjuster within the office of Risk Management, had asked for a claims check to be returned to her instead of being mailed out directly to the claimant, per usual practice. Thanks to the skeptical check recipient, the State of Vermont was alerted to a possible fraud.

The employee was accused of using her position to falsify a claim and use those funds for online shopping.  What lessons can we learn from this employee’s access to funds and her ability to get as far as she did in committing fraud?

  • No one person should have full control over any aspect of a system. Having just one claims adjuster may help lower the overall employee salary budget, but not for establishing proper oversight. Was there another employee who could have reviewed the cut checks, and another to sign them? Checks and balances are just one tool used to protect an organization from employee fraud.
  • Any departure from protocol should be a red flag. When the check was returned to the adjuster instead of mailed, other employees should have questioned the request. However, even with strong safeguards in place, employees must be trained on how to follow the proper steps to help prevent fraud.
  • This employee may not have been so bold if she knew the State may do a surprise audit at any time.Make employees aware that surprise audits may happen, and follow through with those audits. Fear of discovery can be a powerful fraud deterrent.
  • Just like in this example, many instances of fraud are caught by a third party or a tip. Companies should standardize the reporting process with a way for employees to anonymously report when policies and procedures are not being followed. A hotline is a great way to offer that ability to employees.

Preventing fraud in the workplace is about education.  Employees need to be aware of the company or organization’s fraud policies and the consequences for fraud.  This can help lessen the fraud risk and also give employees some guidance on reporting fraud should they observe any red flags.