Business owners, even attorneys, need to trust their accounting staff to run their businesses. Sometimes, however, it takes an outside party to remind you to also verify that trust is deserved.
In this internal investigation, a law firm had received a call from a retailer regarding unauthorized purchases by the controller on the firm’s credit account. The firm investigated further and discovered payroll fraud in addition to the unauthorized purchases.
What makes this case worth sharing for us is rooted in the problem that small businesses often do not think that long-time and highly trusted employees could be stealing from them. However, as our client found out, while the individual amounts stolen were minor, the sum of the dollars taken materially added up over the years.
SCG was engaged to perform a detailed analysis of the unauthorized purchases and the payroll accounts. After quantifying damages in the form of a written report (which was submitted to the firm’s insurer), we also testified several times at employment-related hearings. Our work was fully accepted by the insurer and the client was able to receive maximum insurance coverage proceeds. SCG also provided compelling testimony when the (more than one) employees involved in the scheme tried to claim unemployment benefits.
The takeaway from this case is this: small businesses are particularly at risk when long-term relationships develop with employees and their audit firm. One of the very best (and highly recommended by the AICPA) ways to ensure independence and healthy professional skepticism is to rotate audit firms every few years.