Stop Theft!

Protect your assets with strong internal controls.

Source: CUSTOM HOME Magazine
Publication date: 2006-03-01

| By Steve Maltzman, CPA |

Several months ago I received a call from a client who said that he suspected that his bookkeeper was embezzling his company's funds. The bookkeeper had worked for the custom builder for over a year and was a hardworking, loyal employee (at least that is what everyone in the company thought). Unfortunately, the builder's suspicions were correct. After spending tens of thousands of dollars on forensic accountants (with still a lot more work to be done), the builder has been able to identify more than $100,000 in losses, and the former employee has not yet been arrested.

In addition to discovering the embezzled money, this builder uncovered more that his “trusted” employee had done. She:

stole bank statements, voided and canceled checks, credit card statements, and other company records.

deleted many company records, including accounting backup files.

kept a double set of accounting books.

secretly installed software on one of the company's network computers, giving herself unlimited access to the computers from home.

forged the owner's name to checks.

modified checks written to payable vendors that the owner had signed.

processed payable checks for a fictitious vendor she had set up.

processed checks payable to “cash” from the petty cash account.

used company funds and credit cards to purchase personal items.

encumbered tens of thousands of dollars of debt for the company by forging convenience checks on the owner's and company's credit card that she stole from the mail.

made wire transfers out of the company's checking account to her personal account through the company's online banking service.

neglected to make electronic transfers of payroll taxes.

The bookkeeper did give some clues to her behavior. She came to work driving a new car and wearing expensive clothes. She worked excessive hours, refused vacation time, and did not allow others to help with her duties. But the biggest clue was undiscovered—she had been arrested for embezzlement twice before coming to work for the builder, was convicted once, and currently was on probation. Unfortunately, the builder never checked her references or criminal record prior to hiring her.

You may be reading this article thinking, “This could never happen to me.” You may be saying to yourself, “My trusted employee would never embezzle funds from me.” However, this was not the first time I'd heard an embezzlement story, and I am sure that it won't be the last. I hope that the next time I hear a story like this one, it is not from anyone who has read this article and implemented some of the internal controls that I will be addressing.