Larry’s Laws of Larceny- Law 13: Collusion is Hard to Catch and to ProveBondBeebe
Larry Beebe, CPA
The American Heritage Dictionary defines collusion as “a secret agreement between two or more parties for a fraudulent, illegal, or deceitful purpose.” In an employee benefit fund, certain people in the organization have the responsibility of handling the income receipts of employer contributions. Other individuals are responsible for maintaining the accounting records of the plan. For example, an account receivable clerk is responsible for posting employer contributions to the accounting records.
When a person responsible for handling plan assets and a person responsible for recording plan transaction collude to steal from the funds, it is difficult to prove that the fraud has occurred. Best practice is to keep these two functions separate at all times.
In one famous case, the Equity Funding Corporation of America, employees conspired to create thousands of phony insurance policies and to record over $2 billion in nonexistent revenue over a period of years. Prosecutors successfully charged 22 individuals as being involved in the collusion and estimated that at least 50 other individuals in the company have knowledge of the fraud. If the company had a conflict of interest policy signed annually by all employees, might the fraud have been revealed earlier?