Wait – WHAT was her name?

 
The Case
 
Professor Smith taught accounting, and had a promising student in her fraud-prevention class. He was working on an extracurricular project for his church. They were trying to find out how much they had lost to an embezzling secretary.
 
The secretary was in serious financial trouble when she was hired. But nobody ever looked into her background. Best practices suggest one should do a credit check on folks who touch the money. If someone is in trouble you don’t want to put undue temptation in their path. But they didn’t do that.
 
In fact, the church paid no attention to segregation of duties at all. The secretary had the run of the place financially. She had been stealing from the church for about a year and a half when a family emergency took her out of town. Her supervisor took over – and got a call about a late credit card bill. He hadn’t known about this credit card… Soon, they discovered duplicate paychecks, short deposits, and more credit accounts.
 
The fun part? When the professor noticed the ex-secretary’s name, she recognized it. The same person was now a secretary at the professor’s church. The procedures there were a bit tighter, but still would have permitted fraud to occur. The secretary left before anything any fraud came to light. But the recordkeeping there was so weak that it is doubtful anyone will ever know if she was still at it.
 
Analysis
 
Segregation of duties is where you don’t let one person have all of the tools needed to commit fraud. They can sign the checks… OR they can keep the books… but not BOTH. It’s like having two keys to get into a lock box. With two keys, nobody has the ability to get into the box without someone else there, watching. Keeps people honest. There are a variety of what are called ‘incompatible jobs. For these, you need to bring in an extra pair of eyes.

It can’t happen here!

 
The first church didn’t bother with segregation of duties. They thought, “It can’t happen here!” And the secretary ran roughshod over them. Then the second church evidently didn’t call the first church for a recommendation. It is hard to be entirely forthright when one gets a call, for fear of libel suits. But if the first church recommended her for housekeeping instead of a finance job? The new church might have gotten the message.
 
How to prevent this at your church
 
  • Recognize that “it CAN happen here” – both of the churches above were in denial.
  • Segregate duties. Determine what it would take to steal AND to cover one’s tracks. Then ensure that the same person doesn’t have the ability to do both.
  • The pastor or some other non-finance person should look over the bank statement. They should do this before giving it to the bookkeeper, to do a smell-check.
  • The person keeping the books should not be able to sign checks – ever.
  • Someone should check over the reconciliation after the bookkeeper finishes.