University Business - July/August 2011 - (Page 92)

Embezzlement Epidemic to reinforce the policies and to detect irregularities. The reality is that many colleges and universities, simply as a result of their cultural ethos, do not operate as a typical for-profit commercial operation. As such, while they may be large in size, many practical business controls may not be in place to prevent or detect common defalcations. Nevertheless, there are some proactive steps we recommend that higher education institutions take to minimize and mitigate the risk of embezzlement. These recommendations include, but are not limited to: • Do not allow a single individual access to all aspects of institutional finances in any given department. Make sure there are divisions of duties, in the finance department in particular. • Regularly rotate responsibilities for bookkeeping personnel. • Require bookkeeping personnel to take vacation time off. Embezzlers often take little or no vacations to safely perpetrate their schemes. • Do not allow bookkeepers to take work home. • Require two signatories on outgoing checks above a certain nominal amount. The signatories should be different individuals from the check preparer. • Examine cancelled checks regularly. One common method of embezzlement involves the forgery of checks. Another is to have • Know who your institution’s vendors are. As we can see from the previous examples, embezzlers often create phony vendors and submit fraudulent invoices for payment. • Examine payroll records regularly. Some embezzlers issue themselves extra paychecks and bonuses through the payroll system, as we have also seen. • Investigate vendor complaints promptly. If vendors are not being paid as expected, it may be a sign that the payment checks are being diverted. • Conduct pre-employment background checks for all personnel with any fiduciary duties. • Prosecute perpetrators, creating a permanent record future employers can find. An institution’s response to the revelation of white collar embezzlement shenanigans is nearly as important as preventing or detecting them in the first place. A swift investigation, overseen by internal and/or external legal counsel, must ensue, beginning with a small circle of those who need to know and expanding from there. Such an investigation will involve an analysis of institutional records as well as possibly conducting select interviews and a possible “external” investigation focused on lifestyle, conflicts of interest, and asset identification. The most typical records under your control If an investigation includes interviewing select will be financial books and records. And as such, individuals, use the reverse onion peel strategy, working an independent forensic accounting review will almost always be necessary to quantify the loss from the innermost circle outward as needed, which and to determine how the scheme(s) worked and helps contain and control the investigation. to where the monies were funneled and from which sources. The accounting analysis will also them payable to the embezzler or to personal vendors. be necessary for any future claim under a fidelity policy in the form • Maintain unused checks in a lockbox. Be sure all checks, purchase of a “proof of loss,” as well as the basis for prosecutorial referral. orders, and invoices are numbered consecutively and reconcile any Interviews of select individuals may also be part of the process. of those missing. Again, use the reverse onion peel strategy, working from the • Conduct regular as well as random audits. Educational institution innermost circle outward as needed, which helps contain and management should take a hands-on approach by physically control the investigation. This process might include an interview spending time with the bookkeeping department periodically. of the suspected perpetrator himself or herself. If strong enough • Audit petty cash, credit card charges, and expense reports evidence is gathered quickly, such a confrontational interview may be regularly. beneficial and even elicit a confession. In our experience, interviews • Be sure each payment, electronic or otherwise, is backed up with should be conducted in a “two on one” format, particularly with appropriate documentation. the suspect in question. This allows for corroborating testimony of • Back up financial records daily. what was said, which is often necessary. • Make and reconcile daily deposits. Use a “for deposit only” stamp As soon as enough evidence is gathered to satisfy institutional for check deposits. The person recording cash receipts should be authorities, the suspected employee should be immediately suspended different from the one making the actual deposits. or terminated, including all computer, banking, communications, • Bank reconciliations should be made by a different person than and other access rights and privileges. In that event, such a decision those that handle cash receipts and cash disbursements. should be made within hours or a few days at most, but certainly 92 | July/August 2011 universitybusiness.com Investigating Suspected Embezzlement http://www.universitybusiness.com

Table of Contents for the Digital Edition of University Business - July/August 2011

University Business - July/August 2011
Contents
Editor's Note
Ad Index
College Index
Behind the News
Sense of Place
Viewpoint
Financial Success
Money Matters
Community Colleges
Funding Capture
Models of Efficiency
Thwarting ID Thieves
Embezzlement Epidemic
What's New
End Note

University Business - July/August 2011

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