Case #1: Multiple Missteps Cost This Government Agency $2.4 Million

The Conviction:
In 2007, an accounting clerk previously employed for 12 years at a county government agency appeared in criminal court and was sentenced to 10 years in prison for stealing $2.4 million.

The Alleged Scheme:
This trusted employee was given the authority to prepare and issue government agency checks without proper internal safeguards and reasonable management oversight. Between January 2002 and September 2006, this employee wrote 137 county agency checks valued at $2.4 million and deposited them into her personal account.

The Scheme’s Downfall:
This fraud scheme was actually uncovered—strictly by accident, as result of a credit union employee calling that county agency’s Vice President of Finance and asking a question about some government checks being deposited in a personal checking account. Shortly afterward it was confirmed that the account in question belonged to one of that county agency’s employees. At this point, government auditors were called-in and an investigative audit was launched.

Lessons Learned:
This major theft could have easily been prevented:

• This individual should have never been hired! Had a criminal background check taken place, it would have revealed that this employee had at least two prior criminal convictions for stealing from previous employers. One was for a $1,200 theft while working at a bank in 1985, and the second in 1988, when convicted for stealing $100,000 from another employer.
• Every business manager must ensure that appropriate internal controls, segregation of duties and supervisory oversight are in place and consistently enforced. For a single employee to have been able to prepare and issue 137 government agency checks and later deposit those same fraudulent checks into her personal bank account, obviously those critical accounting safeguards were either not in place or seriously ignored.
• Even if the above two steps had not been in place, had this individual’s supervisor known what tasks to oversee and verify, and performed those tasks, this blatant crime would have been prevented or quickly detected.
• It is also worth noting that previous financial audits also failed to identify that anything was amiss. Few managers recognize that it is common practice for an auditor’s “scope of audit” not focus on detecting fraud, and this is another valid reason why management’s role in the preventive process is so important.

Be informed – learn from the experiences of others. Get involved – and YOU will be prepared.

Read more in Business Fraud: From Trust To Betrayal