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Cash In On Today’s Banking Environment

This month we wanted to share with you a petroleum owner’s unfortunate experience with embezzlement. By providing you with the details of this loss, we hope we’ll help you avoid a similar situation. The only redeeming aspect of this story is the crook is behind bars.

Employee background. The employee was a CPA recruited for the company’s CFO position from a reputable, sizable local manufacturer.   A grandmother in her 50’s, prior to working for the manufacturer, she was employed in public accounting at one of the nation’s largest accounting firms, Arthur Anderson. She was double licensed in two states and all references checked out beautifully.

The method. The company had a procedure of weekly computer checks, but kept manual checks for necessary payments that came up between check runs. Using the manual two-part carbon checks, the CFO would make the top copy out to herself, but cleverly not make an actual carbon on the name, filling in that section with a legitimate payee that no one would question. Since she was not an authorized signer on the account (a safeguard the company had instituted rightfully for protection), she forged the payables department manager signature.

The company had also instituted a policy that the payables person did not reconcile the checking account – this function went to another clerk. This CFO, however, would catch the monthly bank statement before it went to reconciliation, telling the clerk she needed to send a vendor proof of payment. The bank statement consisted of mini-photocopies of the checks, not the actual checks. When the CFO interceded the statement, she would white out the payee (which was herself), insert the false payee name she had used on the carbon, and then forward the statement to the clerk for reconciliation. Of course, it all balanced beautifully to the carbon. It all seemed so normal that no one questioned her intervention.

The thief is caught – Through blind luck, during daily cash flow duties via PC link to the bank, a clerk noticed an unidentified $10,000 item and asked the bank for a physical copy of the check. When the bank faxed over the front and back, it was made payable to the CFO. The clerk went to the payables manager with the copy and asked her why she had made a check for $10,000 payable to the CFO. The payables manager realized it was not her own signature, marched the copies into the owner, and the investigation began. Over 18 months of employment, the CFO stole almost $300,000.

Prevention – Per the owner, despite numerous typical audit controls, the missing piece was simple – an inspection of the company’s actual physical checks. Because the company’s bank kept the actual checks, sending only tiny 2” by 3” photos where the forged signature was not distinguishable, the theft went on far longer than it should. At owner request, the bank is now sending back actual checks, with the owner personally taking the extra step of a quick thumb through those physical checks. He figures the ten extra minutes per month is well worth his time.

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