Two heads are better than one
Hiring employees is expensive. I get it. Really, I do. Segregating duties to prevent fraud by employing more than one person seems like overkill. For small businesses, although desirable, it is just not feasible. It is just not realistic to expect a small business owner to employ two or more employees when they can make do with just one.
For mid and large sized companies, segregating duties is absolutely crucial. Here’s an example of why…
Shaun Allen Clark pleaded guilty to a $2.3 million embezzlement scheme. Clark stole checks from The Scotts Company totaling $24,450. That was just the beginning. In 2008, Clark joined the Ohio Bridge Corporation as a controller. Between April 2008, and September 2009, he embezzled $2,310,006. How did Clark manage to steal so much money in such a short time? The answer is simple – he controlled everything…
Clark was granted access to initiate wire transfers from the company’s accounts to pay for raw materials. He used this access to transfer funds to his personal account. (Remember what I said about banks and detecting embezzlement?)
As controller, Clark managed bookkeeping and accounting entries involving the Ohio Bridge Company and its subsidiaries. He used his access to the “books” to hide evidence of the fraud.
Clark served as the point person for the bank regarding a line of credit. He submitted fraudulent financial statements to the bank in order to comply with the terms of the line of credit and support the embezzlement scheme.
So where did the money go? Clark reportedly spent $100,000 to buy Ohio State football season tickets. He had $101,788.35 in his bank accounts, as well as Chevy Tahoe and boat for his efforts. As for the rest of the money? Who knows…
Small companies can’t hire more than the bare minimum. Preventing employee fraud at small companies requires more creativity to be successful (more to follow in a post next month).
However, medium and large-sized organizations can often afford to have more than one employee involved in a process. Doing so can dramatically reduce the potential for fraud. As this case shows, vesting all that power with one individual resulted in a seven-figure loss than would force many companies to close their doors. Saving on labor costs seems like “false economy” don’t you think?
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