Larry Beebe, CPA

As stated earlier, excellent internal control systems help prevent fraud. One essential internal control concept is separation of duties, no one in the organization should have custody of assets and also be responsible for the accounting for those assets. This concept is likely to be violated when the organization has a long term trusted employee. The rationale is that the person can be trusted because he or she has been there for a long period and therefore “has to be loyal.”

We worked with an attorney from an insurance company who specialized in fraud. He told us that when fraud was suspected in an organization he could almost always spot the fraudster as soon as he walked in the door of the organization. “It is almost always the most trusted employee in the organization who has been given authority to do everything.” He further pointed out that the person committing the fraud never takes vacations because someone else would have to do their job during the vacation period and fraud would be revealed.

The lessons to be learned are never to violate the concept of separation of duties and to make sure that employees take vacations.