I was the CFO of a construction company that had in place some very good accounting controls (policies and procedures that protect the assets of the company). These controls were put in place because the company had once been the victim of accounting fraud.
At the time the fraud occurred, the company had no accounting controls. An individual accounting clerk was responsible for entering invoices into the accounting system, for cutting checks to pay invoices, and for stamping the owners signature on the checks before they were mailed. The only oversight the owner provided at the time was to approve the invoices to be paid from an accounts payable report.
One day the owner discovered that the accounting clerk had been entering and paying invoices to a company her husband owned. Unfortunately, the husband’s company had never performed work for the construction company. In the end, the accounts payable clerk was arrested and forensics accounting by a CPA uncovered that approximately $15,000 had been stolen.
A few years later, I was the financial manager of an equipment rental company. One day I was talking to the owner of a supplier to the rental company and learned that the supplier had been the victim of accounting fraud.
A newly hired accounting clerk had stolen, fraudulently signed, and cashed several of the supplier’s checks. In the conversation, I learned that the person who had committed the fraud against the supplier was the same person who had stolen the $15,000 from the construction company (the supplier had hired the accounting clerk through an employment agency who was supposed to have perform a background check on the individual).
These two stories of fraud illustrate why it is imperative that small business owners put in place accounting controls and hiring practices that can help prevent their companies from being the victim of accounting fraud.
Comments