Bank Reconciliation Process

Dealing With Outsiders' Threats (Part 4)


By Joseph R. Dervaes, CFE, ACFE Fellow, CIA
Fraud's Finer Points 
One of the oldest home-improvement companies in Washington had bad news for its 210 employees: they wouldn't be receiving holiday bonuses. The owner discovered that an accountant had embezzled $1.2 million in five years by issuing unauthorized checks to himself from the company's bank account, and the firm was now short on cash. 

 
The accountant had spent most of the funds supporting an openly lavish lifestyle, which eventually gave him away and led to his conviction. He used the ill-gotten money to woo his second wife and to buy audio and video equipment including an expensive stereo system, thousands of CDs, and hundreds of DVDs. The accountant took most of the money after the business owner's wife was killed in an automobile accident and the owner was distracted. The accountant was later sentenced to 33 months in federal prison for bank fraud. The court also required him to spend five years on probation and to pay back the money to the company. 

 
WHO CAN BEST DETECT DISBURSEMENT FRAUD? 
In prior columns, I discussed the importance of business owners promptly and properly performing monthly bank reconciliations. The owners obviously know the most about their organizations and are in the best position to know if checks are for legitimate business purposes. However, owners are often too busy to stop and consider the risk of fraud by trusted insiders, so they don't implement the appropriate internal controls in the disbursement system. Sadly, and much like the case cited above, the resulting frauds can bankrupt or destroy businesses while distracted owners watch in utter dismay. Sometimes unprosecuted insiders slither off to other unsuspecting employers to wreak havoc again.

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