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Law Office Embezzlement -- Are You at Risk?

by Rich Streitfeld, CPA, CFE

You work diligently to protect your client’s assets. Are you watching over your own? By definition, embezzlement requires a relationship of trust that has been violated. There is surprise and disappointment as well as anger. Small firms may have fewer of these controls in place; you may be even more at risk.

  1. There are no signature stamps kept in the office and only partners sign checks.
      Yes/No
  2. The bank statement is mailed to the managing partner’s home or to the company’s accountant.
      Yes/No
  3. The password to the financial program is changed regularly.
      Yes/No
  4. The managing partner reviews all write-offs and adjustments to client accounts.
      Yes/No
  5. Financial staff must take vacations and their duties covered while they are gone.
      Yes/No
  6. Criminal background checks are conducted on potential employees.
      Yes/No
  7. You keep an off-site or cloud back-up of all computer files.
      Yes/No
  8. You distribute interim financial reports to all partners and meet to discuss them (the reports, not the other partners).
      Yes/No
  9. You review the credit card statements.
      Yes/No
  10. The firm’s insurance policy includes coverage in case of employee embezzlement.
      Yes/No

Answers:

  1. Do you give even your best friends signature authority on your personal checkbook?
    Unfortunately, trusted employees are often the culprits. If your firm is large enough you may have an administrator sign checks. But signature stamps are an invitation to trouble. Develop other procedures if you are the signer and will be away for an extended period.
  2. Bank statements contain clues to possible embezzlement. You do not have to be an accountant to spot check. Consider having the bank statements mailed to your house, or periodically review the transactions on-line. This is especially critical if you have a staffperson paying the bills on-line!
  3. When was the last time you changed the Quickbooks password? What about the security settings on your bank account? Why not leave your car keys in the ignition?
  4. Popular fraud scheme: pocket the payment and record it as “uncollectible” in the records. This is important – for financial management alone, as well as client relations (you stopped providing services because they stopped paying you. Or so you thought.)
  5. Embezzlers don’t want anyone else to see how they’re manipulating the books. Multi-million dollar schemes have been uncovered by accident when the bookkeeper was away. Don’t wait for an accident.
  6. You work in the legal system. You know how to do this!
  7. Real and arranged accidents could damage your only reliable record of activity. Not to mention, fraudsters like to change the records on a regular basis. With a backup you will be able to compare versions. Take a flash drive home on a regular basis and save them, or engage a cloud service. But it is best if you are the originator of the back-ups, not the financial staff. Otherwise the best system can be sabotaged.
  8. Keep them informed, even if their eyes glaze over. They may see something you don’t.
  9. Like you do for the bank statements – receive a mailed copy at home and/or review it on-line personally. ! Especially important if staff uses a card to pay business bills, or has a company credit card!
  10. When all else fails, “employee dishonesty insurance” provides some relief.

Copyright © 2013 Rich Streitfeld
All rights reserved

Richard Streitfeld is a Certified Public Accountant and Certified Fraud Examiner with Aaronson Lavoie Streitfeld Diaz & Co (www.alscpa.com) in Cranston, Rhode Island. He can be reached at (401)-223-0205 or rich@alscpa.com