Alert Accountant Discovers Fraud - But Not Soon Enough
December 16th, 2008 NancyThe accountant for a nonprofit pays the bills each week. After she cuts the checks, she clips them to their backup, puts them in a folder marked “for signature”, and puts them on the executive director’s desk. If the ED is out for a while, she puts them in a locking drawer in his office. Once he has signed them, the ED hands them back to the accountant; if she’s not in, he puts them back in the locking drawer and emails her that they’re ready to be mailed.
The accountant then places each check and any remittance advice in an envelope, seals it, and hands the stack to the office manager, who runs them through the postage meter and then puts them in a box marked “outgoing stamped mail” that sits on a shelf behind the receptionist’s desk so it’s easy for all staff to toss mail into it. Around noon each day, the mail carrier picks up everything that’s in that box.
Last month, this accountant cut a check to her state taxing authority and was reminded that, according to the normal tax remittance schedule, she should have sent them a check last summer. She didn’t remember cutting such a check, so she reviewed her records, which showed that a payment had indeed been made. She remembered that she had been on vacation at the time and someone else had done her job. When she was telling me this story, a puzzled look crossed her face at this point.
“I don’t know what made me do this,” she said, “but I went to the bank statement envelope and actually found the physical check. I couldn’t believe what I saw there: it wasn’t made out to the taxing authority! It was made out to another company that I’d never heard of!”
Then she called the taxing authority and discovered not only that they hadn’t received the check, but that they had levied thousands of dollars in fines and interest on her agency in the meantime without sending any notice that the taxes were late. Puzzled and shocked, she took a closer look at the check: the font was the same throughout and the signature was clearly that of the executive director…but then she realized that the payee’s name was written in a slighter larger version of the font. She didn’t understand how this could have happened. Fraud had clearly been committed…but how?
The check was probably intercepted someplace along the way – either as it waited in the box behind the receptionist’s desk or after it arrived at the taxing authority’s office – and then it was washed. That is, the original payee’s name was washed away carefully with a solvent and then a new payee was carefully added. The bank didn’t notice when it accepted and paid the check. The organization now has its work cut out. It may never get the fines and interest waived and it will almost certainly not recover the original $20,000 – the face value of the check.
Here’s what you might do to prevent this: Follow closely the route checks take through your office and make sure they are secure until they are handed over to a postal worker. Professional thieves need only a few seconds to take your valuables; deny them the chance.
Visit www.NFPAccountingHelp.org for more resources - some free, some not - related to internal control, accounting and finance for nonprofit accounting folks.