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Do you love chicken wings? You love chicken wings so much that you would spend $1.5 million to buy them?
Vera Liddell, a former director at a suburban Chicago school district's food service, was reportedly a. She placed hundreds of orders that were not authorized, and the district paid for them. Then she received them. Authorities are still investigating, but it is obvious that Liddell - assuming she is guilty - likely sold the wings at a profit.
How was the scam uncovered? A $300,000 overage in the budget caught the attention of accountants. Someone noticed that the school district didn't serve chicken wings.
It may seem a bit strange that so many chicken wings were stolen. Fraud in a business is not unusual. You can read about employees stealing from employers almost every day.
The New Jersey legal secretary allegedly wrote checks for more than $184,000 from the firm's account to her family and friends. The FBI has accused the procurement manager of a New York company of creating fake invoices to direct payment to his personal account. Or the human resource manager of a small Pennsylvania manufacturer who raised her own salary and spent thousands of dollars on the credit card of the company. The financial manager at a property management firm in Minnesota embezzled over $1 million of company funds. The director of accounting services stole over $2 million from her company and used the money for personal expenses and trips.
Related: I know how to easily steal money from your company's bank account
The employee of a small-town bank created cashier's check and paid himself using fake signatures. Or the Rhode Island office manager who walked off with hundreds of thousand dollars of firm funds. Or the employee of a Florida beer distributor who tampered with its accounts receivable to steal over $300,000. Or the Delaware bookkeeper who stole $2.6 million in a 25 year period.
Why these people did what they did is not important to me or you. It doesn't matter why. When is what really matters.
These incidents, and many others, happened over time. They were only discovered after the money had disappeared. Even though bringing these criminals to justice may bring some psychological relief for the victims, they are still out of pocket. All the money that was stolen in all those years is now spent. It may be possible to recover some of the money. Most of it has been lost. This is not what you want to happen. What can you do now to avoid this happening? There are a couple of things you can do.
Two people should enter a customer's invoice in your accounting system, and input cash received. It's the same for payables. It's possible that if three people ordered, received and paid for the chicken wings, one of them might have asked why the school district bought chicken wings. It's a good idea to have a financial temp employee do the bank reconciliations.
While you're there, ask your bookkeeper for a copy of the monthly general ledger and spend an hour reading it. Your general ledger is not exactly a pulp novel, but it's the financial journal of your company. The devil is always in the detail. Any transaction that is unusual or unfamiliar should be investigated. You'll probably get reasonable answers but there is always the chance that you won't.
You can reduce the risk of fraudsters accessing your business and personal bank accounts by following these steps
Oversight plays a critical role. My police friend once told me, "To commit the perfect crime, you cannot include anyone else. Once more people are involved, it is no longer perfect." Accounting is no different.
A second important strategy is to insist that everyone, especially those who deal with your money, take a vacation. If someone leaves the office and someone else fills in, not only will you ensure that cross-training is taking place, but the fill-in is likely to stumble upon something strange if it is occurring. You can limit fraud by requiring frequent vacations -- at least two per year. You don't want workaholics. You need to earn money.
You should also have a formal procedure for the disbursement of funds. This means that you need to get written approvals from several people before you can make any transactions above a certain value. You can use an electronic signature platform or ask your accounting software company to approve transactions. Even this kind of procedure can easily be manipulated by a clever bookkeeper. These controls will catch anything that is significant. At the very least, they will send a signal to your employees about how important you consider it to have a system of control.
Get your employees insured and bond them. You should have insurance that covers theft, business interruption or loss caused by theft. It is inexpensive to buy this type of insurance, so you should purchase a lot.
We all trust too much as business owners. We tend to be optimistic and believe that no one would harm us. It's not true. I have a few thousand pound of chicken wings for sale if you are interested.