Bookkeeping Fraud True Story:
Let his pain be your gain

A few months ago, we ran a story on the 13 Red Flags to Bookkeeping Fraud. Since then several people have told me their stories of internal theft. Several shared that they realized only after the fact that several of the red flags we listed were present.

Recently, one of our retail clients agreed to share his story in the hopes that it will help you from experiencing the same situation in your company. The client, whom I'll call Eric, had recently held a large sales event as part of a location move. As is typical during a big sale, things got hectic. "There was lots of cash coming in, and so many cash transactions that we couldn't run them all through the computer system," said Eric. "Our bookkeeper was counting the cash daily, reconciling sales and then going down to the bank to deposit the money."

One day, well into the sales event, Eric noticed that there was a discrepancy between the deposit receipt and deposit amount of over $2,000. Once he started checking transactions, he noticed other discrepancies and not only during the sales event. 

As it turned out, his bookkeeper had been skimming cash for over six months. He falsified the deposit slips by using carbon paper to type in a different number than the actual deposit, then pocketed the difference.

Eric brought in an outside CPA to conduct an extensive internal audit, and the CPA determined the total amount stolen was over $60,000. At this point, the bookkeeper has paid back $11,000 and Eric has a lien on his house, which is up for sale. In this incident, Eric is fortunate as many business owners never see a dime back.

I asked Eric what he wanted to share with others about his experience and here's what he had to say:

• No business is exempt. You may think yours is, but it isn't. 

• When you hire somebody, the things that were true at the time may not be so over the course of time. For example, that trustworthy employee you hired can become unhappy over their pay, they may fall prey to substance abuse or develop a gambling addiction.

• Get your inventory computerized! 

• Don't accept handwritten tickets...ever.

• Separate functions. Don’t have the same person do inventory, reconcile your bank statements, open mail, make deposits, etc.

• Bring in an outside accounting professional on a regular basis to review your internal policies and recommend better ones. Then stick to them.  

• Spot check your deposit slips against actual deposit amounts.

• If you can take cash out of your business, everyone else can. (And if you do it, why not them?)

• Keep track of your checks. If you start missing numbers in your sequence, investigate!

• Have an outside firm do your payroll. It helps prevent problems that can arise when some of your staff see what others are earning. His six-year bookkeeper became irked when he saw what the commissioned sales people were making and gave himself a "raise."

• Large inventory adjustments are not a good sign - investigate them.  

• In short, things that are obvious become not so obvious over time. 
  

  For more tips, visit http://www.brs-seattle.com/bookfraud.html.