A Case Study: Small Business Fraud
By Steven C. Swann, CPA, CFF, CFE, manager
For a real-life look at how internal fraud can impact a company, consider the case of an optometrist who found out that his business lost $48,000 over 14 months when one of his employees was given too much control over cash receipts. Unfortunately, this story is common.
In this case, the employee received payments from customers, recorded them in the ledger, prepared the bank deposit, and took the deposit to the bank. The optometrist-owner provided little to no oversight because he trusted her.
“What about the bank reconciliations?” you might ask. “Who was doing them?” As it turns out, no one was. It was all too simple. The employee deposited all the checks into the bank account and put all the cash in her pocket — every day. She did some fancy accounting in the general ledger to cover it up, but with no oversight, even that wasn’t necessary.
She only got caught because one day someone noticed the cash was still in the drawer after she returned from the bank. She had forgotten to put it in her pocketbook — oops. Simple slip-ups like this are how most business frauds are discovered. The employee ended up pleading guilty to felony cash larceny.
It’s easy to think this was possible because the business was small and unsophisticated. However, most frauds are amazingly simple, making the size of the business irrelevant.
A lack of basic internal controls creates the opportunity for fraudsters to get away with their crime. The biggest deterrent to someone who might want to commit fraud is simply knowing that someone is looking over their shoulder.