Monthly Archives: March 2012

So You Don’t Believe Fraud Could Happen in Your Business? Read On!

Let me introduce you to Ms. Evelyn Reynolds. 

Most likely you have not heard of her.  What makes Evelyn noteworthy is that she embezzled over $100,000 from a children’s charity for her own personal use over a period of less than 10 months.

No One Could Believe It- Not Her!

Evelyn was a loyal and faithful employee who worked directly for the COO of a prestigious non-profit organization in Chicago.  She had an excellent work ethic, went above and beyond the call of duty, she was viewed as a friend by her co-workers and a dependable employee by her supervisors.  She was honest and trustworthy and had terrific performance evaluations that reflected how highly she was regarded.

After she had worked for the non-profit for about a year, her personal life started to collapse.  She became divorced from her third husband,  which caused financial and emotional strain.  She was no longer able to provide for her kids as she had in the past.

As her stress mounted, she began to feel as if she was underpaid given how hard she worked for the organization, and she started to recognize small ways she could take from the non-profit without anyone knowing the difference.

She Recognized Weaknesses in Controls and Seized Opportunities

Because she was the assistant to the COO, she had access to petty cash, she was an authorized user of the organization’s credit card, she approved her own timecards, and more.

Small Amounts in Several Areas Added Up Over Time

 

  •   Because she worked directly for the COO, she was given the authority to approve her own time cards.  Each pay period she added a few hours.  Over the ten months, this amounted to $14,000.
  •   As the COO’s right hand person, Evelyn had the ability to request disbursements to needy families.  She created false applications and support for payments to her own children (who had different last names as she had remarried), diverting thousands of dollars directly to them.
  •   She was responsible for the accounting of unexpected donations and she had authorization to direct the bank to pay vendors directly.  She would deposit the money, simultaneously record a journal entry to reverse the deposit so that it would look like an error, and then direct the bank to transfer the funds to her account with       support that she fabricated to make it appear as if a vendor was being paid.
  •   Petty cash, her responsibility, was looted in the amount of $400.

How Could They Have Let This Happen?

Minimal Controls and even less supervision.  The organization was shocked because they truly believed that a fraud of this magnitude would never happen to them.

Could They Have Prevented This?

Simply put, strong internal controls that were monitored would have stopped Evelyn.  The key is to institute internal controls that provide reasonable assurance that fraud can be prevented or detected quickly.

What Happened to Evelyn?

Nothing really.  She was fired.  She had mailed some of the checks across state lines so she was charged with mail fraud.  But ultimately she did not serve jail time and she did not make restitution for her theft.

Which is a really great reason to make sure and do background checks on all employees, because Evelyn is on the job market!

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