Friday, September 02, 2011

Why You Need Checks and Balances on Those Writing the Checks

Accountant pleads guilty to $1.1M foundation theft

A woman who was an accountant at Munson Healthcare in northern Michigan has pleaded guilty to embezzling $1.1 million from a hospital foundation.

Lots and lots of embezzelment schemes are being detected now that the economy is weak and businesses are keeping closer track of their expenses, and the IRS is noting missing tax payments.

A lot of the fraud happens in the accounting department, because that's where the money is.

I had a client who was ripped off over $300,000 due to the bookeeper's writing checks to herself and falsely entering the checks into the books as going to payroll taxes and rent, which certainly helped destroy the company.

This creates a double whammy: Not only are you out the money they've stolen, you're also liable for unpaid federal taxes and penalties (and unpaid payroll taxes can result in personal liability for the owner of the business), and the federal taxes don't go away.

Often, the first sign businesses get when they've been embezzled in this manner is a federal tax lien for the taxes they up until then believed they had paid.

Businesses really need to have mechanisms in place to distribute the accounting functions of bill payment so that one person alone isn't handling the bookeeping and check writting without some oversight. There always has to be confirmation that the money is actually going where it needs to be paid rather than in a dishonest but trusted employees's pocket.

It is much better to prevent embezzlement before it starts than have to chase after money that is most likely already gone and spent.

1 comment:

Expatriate Owl said...

I don't know about the particular perp in your particular client's case, but so many of them seem to have honed their embezzlement and dishonesty skills with prior employers.

See also Read v. South Carolina Nat'l Bank, 335 S.E.2d 359.

And some employers have been known to rehire proven incompetents as bookkeepers. See Mason Motors Co. v. United States, 8 F. Supp. 2d 1177.

I certainly don't expect you to diss your own client, but you've got to wonder just who really is the shmuck in such cases, the bookkeeper or the one who hired her.