Posted By Gregory J. Sarnecki, CPA
My tale begins as I met one day with Faith, the controller for one of my clients. Faith was very put together and always seemed like she had everything under control. Her office, however, was always a mess of papers, cigarette ashes and dirty coffee cups. Faith never cleaned up her area, and she couldn’t sit still even for a minute. She charged in and out of the company offices, all the while complaining that she was overworked and underpaid. Faith constantly barked at her administrative and bookkeeping staff, “Nobody knows anything around here.” She was so disgruntled that she would hire and fire company employees on a whim. Later, I would learn that this was by design not happenstance.
On previous visits, I had questioned Faith about some of the things that I had observed in the pile of papers on her desk. Things didn’t always add up, and the mess that her disorganization had created was somewhat troublesome. I mentioned my concern to my client on a number of occasions, and he assured me that he would talk with Faith. Well, I guess he did, for what follows may seem irrational, but guilt can be a funny thing!
While waiting in Faith’s office for her to arrive on this particular day, I noticed two large piles of employee W-2s still in their envelopes on her desk. One pile appeared to have been mailed and returned by the post office for bad addresses. The other pile, however, had no such postal markings, and looked like they had never been mailed. Because this puzzled me, when Faith arrived I asked her directly about the pile that hadn’t been mailed. All she could initially say was that she knew they were bad. So, I asked her how she knew. All of a sudden, to my surprise, her face turned white, and she began to perspire and cry! After what seemed like forever, Faith confessed to taking money from the company through a fictitious employee scam.
Like many people who embezzle, Faith started her “stealing” scam first on a small scale by confiscating payroll checks that were mailed and returned by the post office uncashed. She would total up those check amounts and re-write a check to herself as a replacement for that amount. Undiscovered, Faith soon started writing other checks to herself for $1,000, $1,500, and $2,000. Because Faith controlled the hiring, firing and payroll, it was easy for her to be dishonest.
Once Faith confessed, she assisted in the investigation that led authorities to discover that she had stolen about $80,000 from her Company. She made complete restitution to the company by refinancing her house and borrowing money from her parents and friends. Faith was still fired from her job, and her marriage also ended as a result.
This is a TRUE story and just one glimpse of why audits and internal controls are so important.