Commercial Insurance Blog

Two years ago, a paralegal who’d been on the job for sixteen years needed money to pay for unexpected medical bills.  She decided to take the money from her law firm employer rather than ask for a loan.  For the next two years, after her employer signed the quarterly IRS payroll check,

she returned to her desk, shredded the check, cut a new check to herself for the exact same amount, then forged the attorney’s signature and entered the new check into the register as being paid to the IRS.  Naturally, she shredded IRS dun notices delivered to her mail.  By the time her scheme was uncovered, she had stolen $20,000 - which, of course, her former employer still owed the IRS, plus interest and penalties. 

The vast majority of bookkeepers are honest and trustworthy.  Yet the rare dishonest bookkeeper can cause a lot of damage.  Bookkeepers know exactly what owners and managers are (and are not) looking at; most businessowners are more focused on revenue generating than accounting.   Dishonest bookkeepers can tailor their own schemes to avoid detection.  Many schemes cannot be prevented; the best they can be is found early.  Executives must rely on early detection to stop them.

In the example above, the paralegal used a common check-tampering scheme.  Check-tampering schemes are easy to implement.  They also demonstrate that the owner who believes that “it can’t happen here” is easily fooled because they sign every check.  Two simple procedures will deter and detect many check-tampering schemes:

• Responsibilities for check-writing and bank reconciliation should be split between two employees;
• Business owners should examine (but not necessarily reconcile) every bank statement, specifically looking at check images and electronic disbursement descriptions to see who actually received the business’ money.  Ledgers and registers can be falsified; bank statements with check images tell the real story.

Because dishonest bookkeepers employ dozens of schemes to steal money, the cost of manually trying to prevent, deter and detect all of them is prohibitive.  And the fact is, most accountants and auditors lack the training, time, budget and tools to uncover fraud unless it is blatant and sloppy (and they get lucky). 

TraceTech Solutions has developed a unique filter to provide clients with a low-cost service to monitor a business’ books for bookkeeping errors, spot unusual transactions and detect signs of back-office fraud.  Work is done offsite, out-of-sight, often without the back-office’s knowledge. 

To learn more about back-office schemes, detection methods and TraceTech Solutions, please visit  www.tracetechsolutions.com.