Pub. 4 2015 Issue 7

An embezzler needs three things to embezzle: the ability to create a fraudulent transaction, the ability to transfer funds to the employee, and the ability to hide the missing funds. Hiding the embezzlement should never be easy. Sometimes, the embezzlement is hidden by debiting customers’ accounts, but the customers will likely report the fraudulent debits. Most embezzlements are hidden in internal accounts of the bank. It’s the correspondent account and suspense accounts that are used most often to hide the embezzlement. Reconciling correspondent accounts and suspense accounts regularly and having a second employee completely balance and reconcile the accounts monthly can prevent mistakes from becoming disasters and can help prevent large embezzlements. At one bank, an employee reconciled and balanced the correspondent account daily. Once a month, a second person merely looked at the reconciliation spreadsheet for the last day of the month to ensure no reconciling items listed were dated within the past week. During an annual audit, the CPA determined that the correspondent account was short more than $375,000. Upon investigation, it was determined that the daily reconciliations always contained three completely fictitious reconciling items. All were dated the day prior to the reconciliation date and were listed as cash letters going to the correspondent bank. The three separate amounts varied every day, but the total remained at $375,000 for the past 15 days. Upon further investigation, it was determined that the employee had been debiting the correspondent account and crediting her son’s account in $25,000 increments every few weeks for about 10 months. At another bank, a set of what should have been easily corrected errors resulted in large losses because the bank failed to reconcile its correspondent account. The small bank, with fewer than 20 employees, became overwhelmed with satisfying massive new social regulatory requirements and became careless in basic operational controls. For more than three years, the bank failed to even attempt to reconcile its correspondent account with the Fed. When a new operations officer was hired, the correspondent account was found to be out of balance by almost $800,000. Reconciling Accounts Prevents Embezzlement and Corrects Errors THIS IS ARTICLE 4 OF 7 STAY TUNED FOR MORE