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Employee Theft Case: When Accounting Processes Get Murky, Someone Pays


Employee Theft Case: When Accounting Processes Get Murky, Someone Pays



We know there are some critical pieces to accounting done right — core elements like separation of duties, process controls and independent bank reconciliations each month. Jim Counts, CPA/CFTA, brought to our attention a recent case of employee theft that illustrates what can happen when those basic principles aren't met.

This California case involves an employee trusted with far too many accounting duties. Over a year and a half, she used three different check cashing companies to cash checks made out to her employer, HH Computer Systems, to the tune of $650,000.

Upon discovering the theft, HH Computer Systems sued the banks that took the checks from the check cashing companies. While HH Computer Systems lost the initial case, a court overturned the decision in their favor upon appeal.

You can read the details of the case here. But the lessons are already spelled out in black and white in an excerpt from the introduction of the court's decision:

This case about stolen checks and check cashing services presents a distressingly common scenario: An employee of a corporation with responsibility to gather incoming checks made payable to the corporation and deposit those checks into the corporation's bank account — in this case, the corporation's accounting manager — steals some of the incoming checks and takes them to a check cashing service where she forges the signature of one of the officers of the corporation and receives hard cash in return.

Though the outcome was favorable in the end, imagine what HH Computer Systems lost in time, resources and legal fees. All of this could have been prevented if the company had turned to reputable outside accounting services with the right checks and balances in place.

Mark Wald, BA, is managing director of the Supporting Strategies office in Santa Monica, Calif.

Mark Wald


Mark Wald

Mark Wald, Managing Director, Supporting Strategies | Santa Monica, LA, and Ventura County, provides bookkeeping and controller services to growing businesses.

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