Larry’s Laws of Larceny- Law 19: Beware of the Long Term Trusted Employee who Doesn’t Take Vacations

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 […]

Larry’s Laws of Larceny- Law 17: The Confusing Transaction is Often the Fraudulent Transaction

Larry Beebe, CPA

Accounting transactions can be very complex. For example, the use of derivatives in an investment can tremendously increase the risk in what appears to be a conservative asset purchase. Generally accepted accounting principles often allow transaction to be recorded in an entity’s accounting records in many different ways. Some of these ways are conservative, and some employ very liberal accounting. Unfortunately, these transactions can be manipulated in a fraudulent manner to make an entity appear healthier than […]

Larry’s Laws of Larceny- Law 16: The Smart Crook Makes the Abnormal Look Normal

Larry Beebe, CPA

The smart crook can work wonders with a high quality photocopier. Checks, deeds, and other documents can be created that appear to be genuine, but are as phony as a $3 bill.

Barry Mikow started a carpet cleaning business, ZZZZ Best, while in high school. He soon branched into the “insurance restoration business” to restore buildings damaged by natural disasters. The “insurance restoration business” didn’t exist. He and a partner forged all of the documents to create the […]

Larry’s Laws of Larceny- Law 15: You can Drive a Mack Truck Through an Internal Control Hole

Larry Beebe, CPA

An organization must have excellent internal control systems to insure that its accounting records and financial statements are complete and accurate. An employee benefit plan has many internal control systems including cash receipts, cash disbursements, benefit payments, payroll and participant data. A person working at the plan who wants to steal only has to find a small flaw in the internal control system to steal. In no time, that small flaw in the internal control system becomes […]

Larry’s Laws of Larceny- Law 18: Two Signatures on a Check may be no Better Than one Posted on Decemb

Larry Beebe, CPA

Many organizations have a requirement that any check drawn for more than a certain amount must be signed by two people. The assumption is that two signatures are better than one. If each person signing the checks takes their responsibility seriously, and examines the supporting documentation for each check, then two signatures are better than one. The fictitious scenario in the next paragraph shows how two signatures could be worse than one.

Rotten Rodney has had it with […]

Larry’s Laws of Larceny- Law 13: Collusion is Hard to Catch and to Prove

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 […]

Larry’s Laws of Larceny- Law 12: Petty Cash Sometimes Isn’t

Larry Beebe, CPA

How much time is the external auditor of the financial statements going to devote to the audit of petty cash? The auditor probably will not spend any time on petty cash because it is not a material item in the plan’s financial statements. Plan auditors spend most of their audit time in five major areas- investments, benefits, contributions, expenses, and participant data.

There is one exception. Transactions in petty cash can be indicators of fraud and, as such, […]

Larry’s Laws of Larceny- Law 10: Investment Income Disappears if you Don’t Account for it

Larry Beebe, CPA

Entities have internal control systems that insure that investments owned by the organization are properly accounted for. Often the internal controls over the income of those investments is lacking.

During the audit of a pension fund, we examined whether the income on a $5,000,000 bond with a 9% interest rate had been received. We found that one of the semi-annual $225,000 interest payments was missing. When we tracked down the missing payment we found that it was being […]

Larry’s Laws of Larceny- Law 9: The Executive Chef Isn’t Into Cooking the Books

Larry Beebe, CPA

What does “cooking the books” mean?

Investopedia defines “cook the books” as “a buzzword performed by corporations in order to falsify their financial statements.” Examples include accelerating revenues and delaying expenses. A pension fund could make its year look better by holding open cash receipts until after year end to record receipts as income that should be recorded in the following year.

I once audited a business that showed a high cash balance at their December 31 year end. […]