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Breakdown in Financial Controls
Costs CEBI Member Company $50,000

A CEBI Member was shocked this week to learn that a salaried employee had given himself a raise!   How, you might ask?   He had reported 15 hours of overtime weekly on a project, at time-and-a-half rates -- the equivalent of 22.5 hours of additional pay each week for a period of 6 months until the problem was discovered.

It turns out that his timesheets were not being approved by a line manager, but rather the same clerk who put them into payroll.  The employee and clerk both claim a "misunderstanding", and the Company is scarcely positioned to call it collusion, having paid it for 6 months.  A breakdown in basic financial controls that cost a member a lot of money.  

In a completely different case, reported last week in local newspapers, a clerk was found guilty of embezzling over $539,000 from her employer, a residential services company.   How, you might again ask?  She was the person responsible for receiving checks from the field mechanics, posting the income to the accounting system and making the bank deposits.  Again, a classic breakdown in financial controls -- a single person should not be doing all those functions.  

In this reported case, the company (The Service Company) uses "TSC" as its brand.  She opened her own checking account in the name of Teen Spirit Council.  Thus when she received a check made out to just "TSC", she neglected to post it as company revenue, made out her own deposit slip and deposited it in her own "TSC" account.  The business owner now knows why the company had been working so hard for several years and not making money!  He was quoted in the paper as saying he knows she'll never be able to pay the money back.  

What to do?   

This time of year is a great time to launch an "Internal Financial Controls Review/Audit".  Get it done before the year-end pressures set in.  It's probably worth some fees to your CPA or another service provider to come in, have a third-party look at how you do business and handle money, and give you the peace of mind of knowing that you're as well protected internally as you can be.   It might also be a good time to check with your insurance agent to see that your "employee theft" coverage is adequate.  These cases can add up to real money over time.  

As always, this is an Alert based on general information.  Your situation is unique, and you should rely on your own trusted advisors in making any decisions.  


Terry Weaver
Chief Executive Boards International
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