Eye Opening – A Story of Fraud

I’ve written on this topic, I’ve spoken on this topic and I continue to throw out my outrageous statement to every new client “Never trust anyone with your books, even your own mother!” Each time I speak this way, my new clients will recoil in horror as if they’ve just discovered they have hired a she-devil. But, sadly, another story of betrayal and heartbreak was laid at my feet recently and I’d rather be considered a skeptic of mankind than have another family/partnership broken up by fraud. Yes, it is an uncomfortable and disconcerting role that I play. But noone likes to be suspicious of a person that has been a loyal employee for year. Except me.

Before launching into an all too familiar story, let me start by saying that the majority of unsuspected fraud that occurs under your nose does not originate from evil intent. It does not start by a bad person doing bad things. There is a motivation/opportunity/rationalization or an accounting Bermuda Triangle that occurs in many cases. It is human nature that a disgruntled worker who was passed over rationalizes that they should take a few thousand extra on their paycheck if the opportunity arises. An office manager is left with the temptation that the five business owners in their office suite leave their checkbooks unlocked in their drawer and he/she does all of the bank reconciliations so why not take a little for themselves. A mother does the accounting for her son, whose business is on the rise, but his sister is in drug rehab and the bills are piling up. Fact or Fiction?

I am a broken record when it comes to protecting my clients. I insist on checks and balances or what is called “Segregation of Duties”. Does it make sense to let one person write the checks, put the signature stamp on the checks, seal and mail the checks and then hold documentation hostage? Is this the same person who should open the bank statement and reconcile? If there is no review by an outside party, one person holds the opportunity in their hands to commit fraud. Add to that an unforeseen tragedy in their household (motivation) and “I’ll only borrow a few hundred dollars and will put it right back” rationalization and you have the perfect storm. With all of that said, many business owners are short-staffed, they don’t want to pay an outsider to do the work that their accountant should be doing. They believe the bank would never allow fraud to happen. FALSE! There is a time limit on which your bank is liable and holds the responsibility. It is up to the owner to be diligent and catch it before it is too late.

Recently, an accounting firm found me on the Find A Pro Advisor website and asked if I could help. His good friend and client just discovered that one of his family members, who was solely responsible for their books, had embezzled thousands of dollars over the course of many years. The accountant and the client have had an amazing outlook on moving forward, getting help for the lost soul and moving on. But it made me so very sad to think of how that family has been broken up, maybe for life. It made me ask myself why people are inclined to turn a blind eye from what may be a nagging question “Does this cashflow look right?” Has it happened to you? Is your company on target for this disaster? Let me know what you suspect within your business and we’ll take a look together.

Click here for the Fraud Quiz for Small Biz. Let me know your thoughts or stories.