The dish on disbursement fraud

FROM http://idahobusinessreview.com/2013/06/17/the-dish-on-disbursement-fraud/

Forging signatures on checks, charging personal purchases to company credit cards and paying off personal credit cards with company funds are just a few examples of a common form of embezzlement: disbursement fraud. Since this is the most common form of funds misappropriation, every company needs to know how to protect itself. In an ongoing series on fraud myths and realities, here’s what you need to know about disbursement fraud.

Myth 1: People you trust will never steal from you.

Reality: The only people who can steal from your business are the ones you trust. Trusted employees have access to assets, and they understand accounting processes well enough to work around your controls. In fact, in a report on six-figure embezzlements, more than 70 percent of perpetrators worked in finance or accounting.

Case in point: Susan Hopkins, former executive assistant to a Coldwater Creek CEO, pleaded guilty to embezzling $260,000 by charging personal expenses on company credit cards. Hopkins had direct access to funds and pursued this common disbursement scheme for four years before she was caught.

Myth 2: Men are more likely to steal than women.

Reality: In the embezzlement report, women accounted for 64 percent of cases – though men embezzled more on average ($1.7 million for men versus $800,000 for women). Note that each of the embezzlers featured in this article is a woman.

Case in point: A former secretary for the Blaine-Camas Farm Bureau office pleaded guilty to charges of embezzlement last May. She was charged with writing roughly 90 checks to herself – totaling $35,000 – over four years.

Myth 3: People go to great pains to conceal their misdeeds in the accounting records.

Reality: If no one looks at the bank statement or cancelled checks, a morally flexible bookkeeper can conceal fraudulent activity with surprisingly little effort. The same embezzlement report identified forged and unauthorized checks as the most common scheme, beating all others by almost a 2-to-1 margin. Such schemes went on for more than four and a half years before being discovered.

Case in point: Tracy Dalin pleaded guilty to embezzling $530,000 from Sun Land Investments in Bellevue, Wash., where she had worked as a real estate agent and office manager. She forged the owner’s signature on checks and deposited them to her accounts, made unauthorized transfers of funds to her personal bank account, and arranged for bank statements to be mailed to a post office box she controlled so she could alter them before showing them to the owner. Dalin beat the average, pursuing her schemes for seven years before being discovered.

The good news? You can prevent and detect disbursement fraud with proactive internal control and oversight procedures.

If your organization’s internal controls have never been formally evaluated, consider retaining the services of an accountant or forensic accountant to do an initial assessment.

After that baseline evaluation, assess internal control design and compliance at least annually and whenever you experience turnover of executives, turnover in the accounting department, or when you implement a new accounting system. This can be done by an owner or board member familiar with accounting processes and internal controls or by an independent party.

A documented system of checks and balances serves two purposes: to identify honest errors and uncover dishonest acts. Early detection of either helps organizations reduce the financial effects of theft and embezzlement, prevent erroneous financial reports, and ensure proper regulatory compliance.

The presence of strong internal controls does not imply mistrust of executives, accountants and bookkeepers – in fact, it protects them from undue doubt and suspicion. These controls demonstrate sound management and professionalism, and are evidence of a well-run organization.

Trust, but verify.