The recent fraud conviction of a Pawtucket, Rhode Island woman who kept insurance checks for vehicle repairs when she was an office secretary at an auto body company serves as a cautionary tale for center owners of collision. Two CPA organizations recommend putting in place a system of checks and balances to avoid schemes that could prove costly not only financially, but also for the reputation of companies.
For two years, starting in 2016, 48-year-old Idalee Johnston fraudulently pocketed more than $220,000 from nearly 200 checks provided to customers by their insurance companies to pay for vehicle repairs by not having them sign the direct payment forms or by not forwarding signed payment forms to insurance companies, according to the Rhode Island District Attorney’s Office in the United States. Johnston pleaded guilty to mail fraud on October 13, 2021 and was sentenced on February 17 to two years in federal prison followed by two years of federal supervised release. She was ordered to pay $220,083 in restitution to the owners of the body shop she defrauded.
“As a result of his actions, insurance checks to pay for repairs were sent directly to customers who, in turn, at Johnston’s direction, provided the checks to him as a company representative,” said a press release from U.S. Attorney Zachary A. Cunha’s office says. “Johnston previously admitted in court that she deposited some of the checks into her bank account. In other cases, stolen checks were provided to family members to be deposited in their bank accounts, and later, under his direction, these family members provided him with most of the funds.
Repairer Driven News spent time researching what small businesses can do to prevent fraudulent acts and found some tips from CPA Gross, Mendelsohn & Associates and the California Society of CPAs.
Gross Mendelsohn recommends implementing a series of internal controls, or checks, to prevent fraud, including segregation of duties, regular audits, management review, employee codes of conduct, and anti-fraud training for management. and/or employees.
According to Gross Mendelsohn, segregation of duties and management review are the two most important steps in preventing fraud. Segregation of duties ensures that an employee does not have too much control over business operations.
“For example, a company where a bookkeeper writes company checks and handles company accounting has inadequate segregation of duties,” a blog post on the company’s website reads. “The accounting clerk in this case has too much authority. He or she can write checks to themselves, friends, or family, and because they control the accounting, they can hide the fraud from the business owner.
A frequent management review should be conducted on-site and involve the regular review of records, including checks issued, deposits and journal entries made, invoices issued and invoices received. According to Gross Mendelsohn, being on site allows you to compare machines and available inventory to determine if the payments made are reasonable.
The California Society of CPAs recommends the following to prevent fraud:
- Conduct a thorough screening of potential employees, including checking previous employment, personal and professional references, and criminal records;
- Separate accounting tasks such as opening mail, processing payments, bank deposits, paying bills, handling petty cash, and reconciling bank statements;
- Have the bank statements mailed to the business owner’s home or PO box for review before the accountant;
- Organize surprise audits;
- Create an ethical work environment and a culture of non-tolerance through employee orientation, training and other communications so that all employees know what constitutes fraud, what the consequences of an activity would be fraudulent and what steps the company takes to detect fraud;
- Make sure all employees take vacations because “research has shown that employees who commit fraud sometimes resist taking vacations because they need to stay on the job to cover up their fraudulent activity. For some employees, just knowing that they have to take vacation each year is enough of a deterrent; »
- Don’t limit your attention to financial fraud – also watch out for the theft of confidential information and trade secrets;
- Consult with a CPA to discuss steps that can be taken to help prevent and detect internal fraud.
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