When it comes to employee fraud, many organizations dismiss it as something that plagues other organizations. “It can’t happen to me,” is the typical belief. However, not only can fraud occur at your organization — it could be happening right now. After all, the typical business loses 6 percent of its annual revenues due to fraud. So how do you combat it? How can you deter fraud within your organization?

To begin, it’s crucial to reconcile your bank statements in a timely manner. Most organizations reconcile their monthly statements, but whether they reconcile June’s statement in July or June’s statement in December is a critical difference. Reconcile your statements as soon as you get them — this will reveal any suspicious activity immediately.

Second, make sure to conduct thorough background checks on potential staff; contact references and verify educational degrees to make sure that their resume accurately reflects who they are. It’s also important that the responsibilities between authorization, custody, record keeping, and reconciliation be segregated between staff members. Larger organizations generally have this system of checks and balances in place; however, oftentimes smaller organizations entrust one person with all of these duties, affording staff increased opportunity to commit fraud.

In addition, it’s important to have strong controls over credit cards and wire transfers. Most organizations have adequate controls regarding general disbursements, but given our increasing dependence upon technology, it’s equally important to have appropriate controls for electronic disbursements.

Finally, never underestimate the importance of an active board. As illustrated by our interview with Glen Lile, committed board members will do whatever’s necessary to get to the bottom of things and keep asking questions until they get clear answers.

Designing, implementing, and enforcing internal controls is the first step to controlling fraud in the workplace. It may not eliminate fraud altogether, but it does remove one of the biggest factors in determining whether or not a staff member will engage in fraudulent activities: opportunity.

It Can Happen to You

East Bay Township Supervisor, Glen Lile, recently authorized Plante & Moran to conduct a secret investigation to ferret out discrepancies in the township’s books. “I stuck my neck out, and I was a little worried the board might not back me if they didn’t find anything,” remembers Lile. He needn’t have worried. Plante & Moran’s Litigation, Valuation, & Investigative Services Team discovered payroll irregularities of more than $62,000. We recently talked with Lile about the investigation, its results, and how, if something feels wrong, it probably is.

What led you to believe there was a problem? It started back in 2001 when the township wanted to raise the millage for the fire department. Apparently there was $300,000 that no one could account for on the fire front. No one could answer our questions, and anytime you wanted to see something, you had to go through the Freedom of Information Act. Just to see public records! It was ridiculous.

Finally, we figured out the only way to see what was going on and get some answers was to run for public office. Three of us ran and were elected. We decided we needed a new set of eyes on the books, so we went out for bid for the Township’s annual audit. Hiring Plante & Moran was one of the best moves we ever made.

What did Plante & Moran uncover? They found that the township clerk was embezzling money. Instead of withholding the taxes that she and her daughter rightfully owed, she’d take it out of our general fund. In addition, she didn’t withhold her designated deferred compensation but proceded to fund her retirement account, using Township money. At the end of each year, she’d fill out their W2s as if both had withheld the taxes and deferred compensation appropriately. All told, she was charged with seven felony counts of embezzlement.

So you prosecuted? Absolutely. Plante & Moran referred us to an attorney, and in March, everything came to a head. Detectives raided the clerk’s office, seized her files, and arrested her. Once the arrest was made, we had a board meeting to okay what I’d done. Plante & Moran was great through all of this. Because of the secrecy, there was no way I could pay them for their investigative work initially. Still, they worked diligently to provide us with the resources to see this through.

Were you surprised by their findings? No. I was surprised at what the clerk was doing, but not surprised she was doing something. Several of us had a gut feeling that something was going on — we just weren’t sure what.

Now, I have to ask you this, because nobody ever thinks something like this can happen to their organization. How did your township end up in this situation? Very simply, we didn’t have the proper internal controls in place. For example, the clerk was preparing the checks as well as signing them. While the treasurer also signed the checks, a detailed review of the supporting documentation for the checks was not conducted. Further, the board never saw these checks.

And now? Thanks to Michelle and Darlene, we have the appropriate internal controls in place. Payroll is contracted out. Purchase orders are created for all expenditures. Any checks are attached to purchase orders and reviewed by the board before a transaction may proceed. The clerk, treasurer, one of the trustees, and I all get copies of our bank statements. The clerk and treasurer are no longer allowed to take their computers home. These are just a few of the controls Plante & Moran helped us implement.

Why did you decide to share your story with Universal Advisor? I used to think that government had to be cleaned up from the top down. I have a different perspective now. People tend to think of government officials as crooks to begin with — stories like these only lend credence to that. If we can prevent one township from having to go through what we went through, if we can prevent those taxpayers from losing money, then this will all be worth it.