In one of the stranger frauds I’ve seen, the bookkeeper was stealing money while dying.
I had provided external audit services to this health department for years and knew the bookkeeper (we’ll call her Susan) quite well. She sent me thank you cards – yes, thank you cards – for my audit work. Susan was polite, well spoken, and great at her job. If ever I thought there was someone who would not (and could not) steal, it was her.
But external circumstances can make even the best of people do the unexpected. During the course of the year, Susan developed cancer. The medical treatments resulted in numerous medical bills, many of which were received while she still worked off and on. She died just prior to audit time.
Knowing that Susan had passed away, I knew the audit would be challenging, especially since the health department board had not hired anyone to replace her.
Upon my arrival I requested the bank statements, but the remaining employees could not locate them (not a good sign). I thought maybe she had taken the bank statements home and had not returned with them due to her illness, but that was not the case. After the employees searched for some time with no result, the client requisitioned the bank statements and cleared checks from the bank (this was some twenty years ago, before electronic access).
In reviewing the cleared checks, I quickly noticed round-dollar vendor checks written to Susan. The first one was for $7,000. My first thought was, “Not Susan, I’ve known her too long. No way. ” But then there was another and another…
The weakness was a lack of segregation of duties. Susan did the following:
- Keyed payables into the general ledger
- Created checks for signing
- Had signature authority on the bank account
- Reconciled the bank statements
- Created the monthly financial statements
Are you noticing a recurring theme in the 30 Days of Fraud? Yes, a lack of segregation of duties. It’s fundamental. One person cannot be allowed to do everything.
Segregate the accounting duties. Most importantly, she should not have been on the bank’s signature card. Additionally, someone else should have been reconciling the bank statement and examining cleared checks. For small organizations, have the bank statements mailed to someone outside the accounting department (e.g., a board member); this person should open the statements and review the cleared checks—then the statements should be routed to accounting.
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