Guarding Against Embezzlement Fraud: What Can Go Wrong?
By Ralph Summerford
Welcome to the second installment of our three-part educational series on Guarding Against Embezzlement Fraud. Catch up on part one, Guarding Against Embezzlement Fraud: Developing An Action Plan.
Simply adopting an action plan doesn’t necessarily eliminate the risk altogether. What can go wrong? Many varied problems. The reason unexpected situations arise is because they are unexpected. Examine the following case study:
In this example, the management of a regional midsized corporation discovered that a key accounting department employee had embezzled more than $300,000 in company funds.
As a result of the discovery and the subsequent investigation, the company’s outside auditing firm issued a report indicating that the accounting employee was responsible for the loss. The company ultimately filed a claim with its insurance carrier recouping only $25,000 of the original $300,000 loss. This shortfall was primarily because of policy coverage limitations. While management realized that the embezzled money had been gambled away and, therefore, would not be recouped, the corporation insisted that the employee be punished for the theft.
Accordingly, management turned the matter over to the local district attorney who presented the case to the grand jury, obtained an indictment and prosecuted the employee for criminal fraud. Having presented limited evidentiary materials at trial, including the employee’s schedule, copies of various daily accounting reports, periodic bank deposit statements and direct management testimony, the jury acquitted the employee.
Once acquitted, the vindicated employee filed a $1 million defamation law suit against the outside auditing firm and the company. The case was ultimately settled out of court, leaving the company with substantial legal fees and a large monetary settlement in addition to its initial embezzlement losses.
This may seem unbelievable, but actually it’s far from unique. Be sure to read our upcoming final part in this series next week about how to conduct a successful investigation and be prepared for the unexpected: Guarding Against Embezzlement Fraud: Defensive Measures.