From time to time the management of finances of a particular organization, or company raises suspicion. It could be a company that you hold shares in, or a public benefit organization that you part of or donate funds to.
The custodians of other people’s funds are always held in suspicion. Office bearers and treasurers are often subjected to harsh criticism by fellow office bearers or members of a particular club.
In many instances, the criticism leveled at a treasurer, is unfounded, and normally motivated by fellow members interest in a particular position.(Normal organization politics)
There are, however, serious cases of gross financial mis-management in organizations, ranging from churches, schools, companies and even government. It remains important for members of a club/organization to be vigilant, without being petty.
When suspicions about fraud or theft surface, in organizations, the members normally call for an audit or a forensic investigation into the financial affairs of the said organization. The costs of forensic audits, can be prohibitive. And even after fraud has been detected the legal costs can spiral out of control. If the auditor is not available to provide his expert testimony in court, the accused walk free.
Forensic accounting or auditing is considered to be a new specialized field in accounting. And accountants who want specialize in this field ,enhance their skills with additional studies in forensic accounting. Hence it is so costly. Investigations into amounts as small as $20 000.00 can cost an organization as much as $25 000.00 in audit and legal fees!
To save costs, internal investigations can be conducted * Ignore spreadsheets, financial statements provided by the accused(he/she will try to deflect your attention from the problem at hand. · Verify bank statements thoroughly · Reconcile receipts to cash banked · Add up all the totals of petty cash expenses, and compare to petty cash deposits advanced. · Most thefts/frauds occur at the cash management level of finances. So scrutinize cash payments carefully. · Establish if paid invoices are legitimate. Check the suppliers registration and address details, give them a call. Many fraudulent invoices appear valid, and are paid, but could be a “dummy company invoice”. · An invoice could look real, the payment made, but were goods delivered.? Common areas are quantities of inventory or stationery ordered, but far less than the original order could have been delivered. Check your inventories. · If findings lead to definite proof of theft or fraud, reporting the crime to the police should be your last resort.
Confront the alleged perpetrator in a diplomatic fashion. I am in no way condoning the serious crimes of fraud and theft, but believe demanding a repayment of the stolen funds, plus interest, could be a better option. The frightened accused, would invariably be prepared to cooperate. Disciplinary steps should follow. Only if he refuses to cooperate, should legal steps be considered.
I concede, victims of a fraud or theft would feel hurt and betrayed, but my advice is borne out by numerous experiences where fraud cases have dragged on forever in courts, only to be thrown out after years by a judge, for “lack of evidence”.
Of course the approach would be different where millions are involved, but for frauds and thefts of a few thousand dollars, engaging an auditor or an attorney, is just not worth it.