July 30th, 2009 Nancy
Recently, a client had an unfortunate experience that has reminded me of a theft that occurred years ago and took me completely by surprise. I had worked all morning at a client’s, side by side with the bookkeeper. The client’s facilities were closed to the public that day, and anyway, the administrative offices were isolated on one side of the building where access by the public was not allowed. Eager to complete our project, neither one of us took an actual lunch hour – we each went into the lunch room for a short break. There was a span of perhaps two minutes when neither of us was in her office.
After I left for the day, I picked up my daughter from daycare and we went to get ice cream. That was when I noticed that I had no cash – it had all been taken. And my debit card was missing, too. Whoever had done it was very adept – they had left no clue that anyone had disturbed my purse.
Under the circumstances, I didn’t see how anyone but the bookkeeper could be the culprit: she knew where my purse was stashed and she had been in her office alone. I was due to return to that client’s the following Monday, and I spent the weekend wondering how I was going to bring this up, feeling very disappointed in her.
Monday morning came, and when I arrived at the client’s, I told the bookkeeper without hesitation what I had discovered. Much to my surprise, she told me that another purse had been stolen that same afternoon, this time from a colleague whose office was next to hers.
The security camera by the front door had been on all that day, and the film was viewed. Yes, this was back when there was actually film in security cameras! Unfortunately, the perpetrator could not be identified, but we did learn a lot about how he operated.
An employee of the organization had been working outside on a project and had made frequent trips into and out of the building, unlocking and locking the front sliding glass door each time. The camera showed the figure of the thief pacing up and down the street across from the building, his head down far enough that his face could not be seen. After a few trips back and forth, he saw his opportunity and followed the employee into the building, his head still down. Less than two minutes later, his back appeared on the film: he had already done his work and was leaving the building.
Charges were made to my debit card, but only on the day of the theft. I was able to get the bank to cover them, since the grocery stores where the charges were made had not done a good job of checking ID.
Remember the fraud triangle: motivation, rationalization and opportunity? Remember, too, that opportunity is what we have the most control over when we make efforts to prevent theft? For me, the point of this story is that practiced thieves don’t need much opportunity, and you never know when one might cross your path, looking just like your next client - or the even girl next door.
Posted in Fraud in nonprofits | No Comments »
May 19th, 2009 Nancy
Anna Mueller was a volunteer bookkeeper for the Booster Club at Benson High School in Portland, Oregon. As reported by the Portland Tribune newspaper, she has now pled guilty to embezzling more than $10,000 from the club, which supports athletics at this technical high school. How was she able to take that much money? She had total control over both the records and the money, and she had access to the bank account.
The Booster Club’s predicament is a common one. It’s an all-volunteer organization and last year was its first year. At the time he started the Club, the coach was more than willing to accept help from an experienced parent who had skills he knew were important and didn’t possess. Through the school district, he ran a background check on Mueller, but it failed to uncover her prior conviction in another state for a similar crime because the district’s procedure only checks for crimes involving children.
He left the door of opportunity wide open by not setting up relationships and procedures so that Mueller would be dependent on others to complete her work, others who could participate in the processes so that duties were at least somewhat segregated, others who could review the records she kept.
Benson High’s athletic director, Bruce Alton, now says he thinks that the amount embezzled was closer to $17,000, but because “most of it was undocumented cash, it couldn’t be accounted for”. Booster clubs sell things: refreshments, sweatshirts, other “school spirit” items. It seems that Mueller must have been the enthusiastic volunteer, waving away help from others, saying she was happy to take care of everything so others could have a good time. And nobody documented a cash count or looked to make sure the amounts they had documented actually made it into the bank.
The Tribune quotes Alton as saying he will make sure he follows any protocols for any volunteers, district employees, everybody. “I tried to use her sincerity to my advantage as well. I own that.” Other groups, he says, should take his experience to heart when accepting the services of eager volunteers.
Posted in Fraud in nonprofits, nonprofit accounting | No Comments »
December 16th, 2008 Nancy
The 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.
Posted in Fraud in nonprofits, Nonprofit Finance | No Comments »