Stolen $1.3M over 10 Years20th October 2017
I don’t want to open this blog on a downer, but there’s no getting away from it. Us human beings are fallible (yes – even accountants ?).
Sometimes they make mistakes (especially if they’re overworked) and sometimes they give in to temptation. And if you work in finance, there is a lot of temptation that comes your way.
Just to take one example, an office manager in Massachussets was recently found guilty of defrauding her employer, a life science technology company, out of $1.3 million over 10 years.
Her method was to steal hundreds of the company’s cheques which she made payable to herself or her son, and falsify her boss’s signature. She doctored the books and the company’s statements to make it look as if the stolen cheques had been used to pay legitimate suppliers.
Ultimately, she was only caught because she was convicted of mail fraud with another, previous employer.
How did she get away with this for over a decade?
This lady was responsible for the company’s finances, alone. No one asked her any questions and no one double-checked what she was doing.
As I mentioned last week, to protect your company from both fraud and mistakes, it is absolutely essential that more than one person is involved in your financial transactions. The more people are involved, the greater the chance that someone will notice if something is wrong.
But there’s more to it than that.
What you really need is a division of duties. The same person should not be responsible for both authorising payments and signing the cheques.
The key is not to allow any one employee, in the normal course of their duties, to both perpetrate and conceal errors or criminality.
Of course, in small companies there’s often no way round it. If one or two people start a business together they’ll be doing it all on their own – claiming expenses, approving them, and then maybe even writing themselves a cheque at the end.
The problem is that those habits tend to stick as the business grows, and that’s very dangerous.
As you start turning over more money, you need to make sure that the person doing the buying is different from the person authorising it and paying the supplier. All payments out of your company’s bank account should be reconciled by at least one other person.
I’m sure you’ve spotted the downside – the extra cost in terms of manpower. However, there really is no alternative. Separation of duties is a basic accounting principle, for good reason.
If resources are limited in your finance department, you should consider using other board members, including yourself.
And if you have reached the point where your company is turning over more than £1 million or £2 million a year, consider outsourcing your financial management to us.
Not only do we have rock-solid processes for processing payments – three people oversee every transaction – but we can bring everything to do with your financial management up to world-class standards. You will know your money is being carefully handled, you will be able to trust the figures you’re given – and we’ll help you use them to grow your business even faster, too.
Just get in touch and let’s talk about how we can help.