Here We Go Again!

post dateMarch 24, 2016  •   post categoriesUncategorized  •   post comments number0 comment

Folks, as you know I previously wrote two posts (3-17th and 3-4th ) relating to poor internal controls and insufficient management oversight/monitoring. Well, once again I am posting another embezzlement crime that should not have happened: First, it is important to say that this scheme was able to take place over a period of thirteen (13) years without detection. Next, this individual worked as office manager for a mid-western city’s parks department. Allegedly: The perpetrator was able to conceal her activities by creating false bank statements and providing them to, among other people, the executive director of the organization. The amount of loss was in excess of $430,000.  The perpetrator used the organization’s credit cards to make personal purchases and also transfer funds to her personal bank and credit card accounts.

  • According to alleged indictment information:
  • Used the organization’s credit cards “issued to her or to former or deceased employees” to make purchases.
  • Created and submitted false bank statements using Microsoft Excel, taping over the actual statements to conceal the misappropriation of funds.
  • Diverted checks intended for the [school project] fund by depositing them into the organization’s account and using the money for her personal benefit.
  • Made three purchases totaling $1,250 on a [store name] credit card issued by [name] Bank between August and October 2014.
  • Made 29 purchases totaling $30,279 on a third [card vendor]-issued credit card between January 2013 and September 2014.
  • Made 27 purchases totaling $8,714 on a [name] Bank credit card between September 2011 and September 2014.
  • Made six purchases at [name] department store totaling $1,925 between October 2011 and May 2012.
  • Made 49 purchases totaling $26,787 on a [store’s name] credit card issued by [name] Bank between October 2010 and July 2014.
  • Made 40 purchases totaling $39,963 on a second [vendor]-issued credit card between October 2010 and December 2012.

Issues of Concern: First, credit card controls and monitoring appear non-existent! As emphasized in those two prior posts, multiple tasking is unquestionably the number one operational risk that gives a fraudster the ability to engage in acts of internal fraud or embezzlement. The above organization’s internal controls are either extremely poor, or being ignored. In addition, there appears to be little, if any, oversight and monitoring of critical functions. Keep in mind that this crime took place for more than a decade. Where was management?

Where were the auditors? Surely, since this is a “city-connected group” someone was auditing.     In all fairness to auditors, as discussed in Chapter 3, of my book, Business Fraud: From Trust to Betrayal, while auditors do uncover some incidents of fraud, their primary focus generally is on validating the accuracy of financial statements or examining other financial and operational issues. Experiences have taught me that management’s fundamental reliance on auditors and accountants to prevent and control internal acts of fraud and embezzlement has proven to be dangerously inadequate.

For those of you in business—don’t risk becoming a victim. Learn from my three recent posts. Remember, wrongly bestowed trust has literally destroyed thousands of businesses throughout the United States. Common sense teaches that internal fraud and embezzlement cannot take place within any organization without a betrayal of trust. Unfortunately, such common sense is not so common. Here are a few words of good advice: Trust, but verify.