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Our firm was involved in a fraud investigation where the small business lost $53,030. Not a great deal of money, but, still, if you are the owner, it hurts.

The person stealing the funds had been with the company for several years and served as their bookkeeper. Once the theft was discovered and the news spread, her family and friends said, “This can’t be.” But it was. This is common: A well-liked person rises to a position of trust, and then that person takes advantage of the business. And sometimes the damages are substantial.

Theft Methods

In this theft, the fraudster took money in the following ways:

  • Expense fraud – $5,686
  • Checks made out directly to the bookkeeper – $10,750
  • Use of company credit card for personal expenses – $36,594

Covering Up the Theft

The bookkeeper covered her tracks in the following ways:

  • She paid for travel and meals with the company credit card and then requested personal reimbursement for the same expenses, using the receipts a second time.
  • The transactions were coded in the general ledger to real vendors, but the checks were made out to the person stealing the money.
  • The bookkeeper wrote checks to herself, but she did not record the checks in the general ledger.
  • The credit card descriptions in the general ledger were vague.

You may be wondering how she got the checks signed. A signature stamp was provided to the bookkeeper. Thereafter, she wrote manual checks to herself and signed them with the stamp. Your next thought might be, “But wouldn’t the person reconciling the bank statement see the cleared checks with the bookkeeper’s name on them?” Yes, if someone else was reconciling the bank statement, but the bookkeeper performed this duty.

Creating appropriate controls can save you money.

Trust is Not an Internal Control

One bakery in Corsicana, Texas suffered a $16 million loss when the owners placed too much trust in their controller. A government in Dixon, Illinois—population 16,000—lost $53 million dollars over a twenty-year period, when the city officials placed too much trust in their finance director.

Many small businesses, nonprofits, and governments do not understand the danger that lies within their accounting system, and they trust their bookkeeper too much.  Why? Because they have known this person for a long time, and then disaster strikes. The damage: loss of money, loss of reputation, and loss of friendships.

We believe in the Ronald Reagan adage: Trust but verify.

We Can Help

If you are not sure about your internal controls, contact us, and we will be glad to assist you with a review of your accounting system. Or if you have suspicions that someone is stealing from your business, let us know, and we can assist you. You can be sure that all matters will be kept confidential. We have Certified Fraud Examiners and over sixty Certified Public Accountants that are well trained to assist you.