It is not often that we are hired to conduct a forensic investigation as a result of the questionable actions of an outside bookkeeper – or worse an external CPA. I’ll never forget recent one case where I went to meet with the dentist (who suspected that he was a victim) and when I arrived at his residence to discuss the case, I noted that there was an express delivery envelope on his door step. I handed it to him. In the envelope was a $131,000 check from his former CPA for the “repayment of loans” that he had acknowledged taking without the client’s permission.
This past year, we have become not only aware of, but directly involved in, the examination of several independent trusted advisors, who all were entrusted with client check writing authority, and with the trust of their clients, breached that fiduciary trust and misappropriated client funds for their personal use.
Misappropriated client funds in these cases have ranged from $40,000 to in excess of $2,500,000. The larger cases tend to be criminally prosecuted.
Three issues here:
- There were inadequate controls over the disbursement function and cash in general.
- There was entirely too much trust placed with the trusted individual.
- There didn’t seem to be anyone overseeing the person writing the checks – and in all cases they were also the ones in charge of receiving and reconciling the bank account as well as maintaining the general ledger!
As a reputable CPA firm, we do not take engagements where we have any disbursement authority. Our insurance carrier prohibits such activity. And it is not all that uncommon that some CPA’s offer this service to their clients. But usually, with every administrative convenience to a client, there comes a financial risk.
Take a moment and ask yourself, “Who handles my business checking account?” Forget asking yourself if you trust them because the answer is yes – you do. Then, ask yourself, “Who is looking over their shoulder to make sure that they are not helping themselves to your hard earned profits?” They may be a nice person, but in this day and age, and even within our very own respected profession, good people can – and in fact have – done bad things. Beware.
Is an outside CPA or bookkeeper writing your checks? We can assist you in reviewing your internal control risks associated with these check payment services. Contact our Valuation & Litigation Advisory Services Group at 440-449-6800 for a free one hour consult.