There was a story in the news recently about a Reno construction company that suffered an embezzlement of $750,000 or so. The office manager had a gambling addiction and stole the money during a five-year period. The thefts were finally discovered when some checks written to herself did not clear the bank.
Apparently, the office manager/bookkeeper "doctored" the invoices and the bank accounts so she could write checks to herself.
Certified Public Accountants are interested in the internal controls that help prevent embezzlements. That means looking at original bank statements and reconciliations to be sure all is recorded correctly. Looking at ratios on a regular basis and inspecting the original documents (invoices, checks, etc.) is a part of the work to evaluate the controls.
Our firm many years ago caught an embezzlement in which the employees involved had destroyed all the banking records (statements and canceled checks). By using the bank information from copies that the bank had stored, we discovered the thefts. One person served time in prison; the other was too ill to serve time.
If the owner or main executive receives unopened bank statements and pays attention to internal monthly financial statements, a lot of problems can be avoided. A good accounting system is part of the defense against embezzlement.
Most small businesses - those with fewer than 100 employees - don't have a full accounting department; rather, they split up various duties among several employees. If the same person writes the checks, prepares the bank deposits, records the invoices and receipts from customers, reconciles the bank account, etc., it is easier for them to steal from the company.
Having a CPA firm take a look at how the records system is working, and comparing that to how it should be functioning, is very important. Problems are more likely to be caught early, not five years later. Just having that Internal Control Evaluation may reduce the temptation to steal. Knowing that someone is checking carefully may reduce the possibility of wrongful actions.
Embezzlements not only hurt the company, the employees and the owners, but also hurt the community at large with reduced employment, businesses closings, etc.
Did you hear? "...What the boss checks seems to get done best."
* John Bullis is a certified public accountant, personal financial specialist and certified senior adviser serving Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs, LLC.