employee theft (part 2 of 2)

It was a Wednesday morning, and like many mornings I was starting my day by checking emails.  One from a long-time client caught my eye – the subject line was “memo regarding personal credit card charges.” As I read, I held my breath as the words spilled out on the page. It said, “Our controller made personal purchases with a company credit card.” When asked about it she told the bookkeeper that she had mistakenly used the wrong card, and already paid the charges.  However, upon further research into the payments, it shows she paid these charges with a transfer directly from the business account.”

Oh no, how could this be?  Maybe it’s a mistake I thought.

For the next three days, I dug into their books, hoping, and praying this would all be an innocent mistake. As the next three days passed, the little signs and weird transactions were revealed, and my optimism gave way to serious doubt.

By Friday evening I got the confirmation from the bank that I dreaded – the Controller had been issuing herself additional payroll checks that were deposited directly into her bank account.  After the transfer was made, she’d void the payroll record, and then enter bogus checks into the system under other people’s names so as to not draw attention to the fact that she was embezzling.

For the next two days, I continued to dig, and the total rose to $45K, and eventually to $55K. It turns out it was not only payroll, but also vendor checks made payable in the software to someone else, and then the name changed, and cashed by her.  NOTE: Wells Fargo bank lets you make a deposit on your phone – we’re guessing she just changed the payee on the physical check, deposited the funds, and no one was the wiser.

This controller, new to the job in the last six months, had shown every indication of being completely trustworthy and reliable.  In fact, she had found several errors from the previous Controller and fixed them all. So, what had they missed when they hired this person in the first place?

They’d done a background check, run a credit report, verify previous employment – everything you’re supposed to do when hiring someone who is responsible for the money in your company.

Upon digger deeper, it didn’t take long to see how the systems and processes in that business contributed to this employee’s ability to embezzle.

The following Monday we confronted the employee with a full detail of what we’d found.  She confessed, cried some alligator tears (literally), said there were no other amounts (which was NOT the case), gave a lame excuse of being overwhelmed and pressured, and promised to pay it back (so far, they have seen $1000).

Following that meeting, we went to the police department to file a fraud report.  They provided a case number and said it may take a while for them to process the paperwork, call next week.  That was two months ago.

Today after inquiring for the 3rd time about the report, they told the owner that this case was #133 and that there were 132 cases in front of theirs!!! My heart sank.  Are there really that many people out there stealing from their employers? Unfortunately, the answer is YES – there are.

We want to see the best in people, and not believe that they would do something like this, but they do.  As business owners, we have a fiduciary responsibility to all our stakeholders (partners, employees, customers), and thus need to be diligent in managing the finances of our companies.

Below are some tips that can help you avoid this happening to you.  I also encourage you to read “How to Spot Accounting Fraud.”  EVERY time I’ve seen someone embezzle from a company there were signs.   This is your DO NOT list…

  • Do not let employees be signers on the bank account – especially if they are the ones cutting checks and reconciling the bank account.
  • Have someone other than the person approving/cutting checks reconcile the bank accounts. Make sure to get copies of the front and backs of the check, and review the payee against what shows in your accounting software.
  • Do not let employees make transfers between bank accounts. This should be done by the owner.
  • Do not pay with credit cards online with a transfer, rather cut a check. This is the number one place where people embezzle money in small companies.  There should be a backup for all credit card charges attached to the statement.
  • Don’t sign checks without backup. Make sure to review the backup and that the appropriate person has approved the expense.

When you don’t pay attention to the ways employees are spending your money, they will assume that it is okay with you.  That includes your office and field employees.   Really, it’s weird, but they will think over time that it must be a perk of the job if you let them purchase tools for themselves, or gas for their personal use, or pay their phone bills, or car payments.  I’ve seen it – no joke.

I implore you – don’t abdicate your financial well-being to the really competent and talented accounting person who wants to “unburden you” with the hassle of accounting.  That is a warning sign.

If you missed last week’s blog, check it out “Are your employees stealing from you? How to spot accounting fraud.”  And here’s a resource that will help “How to Spot Accounting Fraud.”

1 Comment

  1. Bob Casagrande



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