Repeat Offenders are Common in Bookkeeper Fraud

Last week, the Kingsport Times News reported that a Knoxville bookkeeper had plead guilty to stealing $4 million from her employer (East Tennessee Bookkeeper Who Stole $4 Million to Finance Luxury Lifestyle Pleads Guilty). What was disturbing about this story is that the perpetrator was on probation for embezzling from another employer two years earlier.

Unfortunately, this story isn’t unique. It is often the case that those committing fraud have done so at previous jobs.

I was once the CFO of a company that was owned by a person who owned multiple businesses in the same industry. A year or so before I started working at this firm, a bookkeeper had used the owner’s signature stamp to sign checks that were deposited in the bookkeeper’s personal bank account. The bookkeeper was prosecuted when the owner discovered the fraud. A few years later, I was at CFO of another company where a vendor had the same bookkeeper use a knife to pick the lock where the company’s checks were stored. These checks were deposited in the bookkeeper’s personal bank account.

What can you do to protect yourself from this happening at your firm?

There are a couple of things you can do to lower the chances that your firm will be the victim of this type of bookkeeper fraud.

The first is to run a criminal background check before making a final job offer to a bookkeeper. Such background checks may run several hundred dollars, but it’s a relatively small amount when compared to what undetected fraud can cost your business. At a recent fraud training session I attended, the speaker told how a motorcycle dealership in Middle Tennessee had to file bankruptcy as a result of a bookkeeper embezzling. Choosing $300 over a liquidation bankruptcy is an easy choice to make.

Second, you can have someone other than the bookkeeper reconcile and review your bank accounts on a monthly basis. If you have time to do this yourself, then you should. If not, a CPA firm can provide this service for you at reasonable costs. By putting a control like this in place, it lets the bookkeeper know that someone else will be reviewing the bank accounts for improper transactions. This should lower the chances that they will attempt to embezzle from your business.

As they say, an ounce of prevention is worth a pound of cure.

Comments

[John Orlando]

When business bookkeeping is sloppy, it's easier for this sort of behavior to slip through the cracks. That's why it's important to have budgeting and accounting software in place. Errors and fraud will be more noticeable than it would be in a confusing Excel document.

[Daniel Broome]

There is any number of ways that a bookkeeper or other member of staff can perpetuate a fraud against you as an employer.

However a simple segregation of duties in even the smallest of organisations will help to limit the opportunities for someone who is intent on stealing. Other easy to implement measures such as using blank check stock, magnetic toner, requiring managerial approval of check runs in your accounting software, and using features such as “Positive Pay” from your banking partner will significantly restrict even fairly determined individuals.

Bear in mind that “even a good locks can only keep good men honest” and although you might not be able to stop a determined thief you can make it inconvenient enough that they will move on to somewhere else where security might be more relaxed.

Regardless of your approach to cash security always be vigilant and time the frequency of your bank reconciliations so that checks don’t become irrevocable before you’ve had an opportunity to review your banking activity.

[online job]

Other easy to implement measures such as using blank check stock, magnetic toner, requiring managerial approval of check runs in your accounting software, and using features such as ble to stop a determined thief you can make it inconvenient enough that they will move on to somewhere else where security might be more relaxed.