Article Review: Creative Embezzlement
In her article Creative embezzlement, Annette Simmons explores the issue of embezzlement of company resources by employees. Simmons details how a middle aged woman, Edith Chase, managed to remain undetected for eight years as she siphoned company funds. The article describes how typical embezzlers lack creativity by using mundane tactics such as submitting exaggerated invoices for reimbursement, inflating their wages, use of company resources and credit cards for personal purposes, and writing checks payable in their names. The writer claims that these tactics make it easy to catch embezzlers. Edith Chase did not use the conventional embezzlement tricks but instead crafted a clever and intricate scheme to defraud her employer.
Simmons reluctantly reveals some admiration for the culprit due to the amount of creativity and planning that she put into her scheme. Chase had worked for the employing firm, Precision Mold Design Inc. (PMDI), for three decades in the payroll department. The company had outsourced a third party, Payroll Processing Company (PPC), for its payroll tasks. Chase’s duties was to inform PPC about employee gross earnings and the accompanying deductions. Also, she was responsible for informing the bank that handled employees’ 401(k)s about the amount to be withdrawn from PMDI’s accounts. As a result, she thoroughly understood the employer’s accounting system together with its loopholes, which she proceeded to exploit.
PMDI’s employees were allowed to take loans against their 401(k) accounts. Chase would inform PPC the amount that should be deducted from each employee’s account for the payment of such loans, including her own loans. However, she would file the correct figures for the loan deductions and the 401(k) plans for all employees, but failed to do the same for her loans. Instead, she indicated false amounts that should have been deducted by PPC, but were not, and sent the figures to Large National Bank for recording in the 401(k) account. The bank would then instruct PPC to send the indicated sums to clear the balance. Hence, she managed to get her employer to service her loans.
I have learned from the article that employee who have served in a single position for a long time are likely to identify exploitable weaknesses in an accounting system. Also, I have come to appreciate the dangers of giving employees authority over their finances. After reading the article, I am interested in knowing how firms can enhance detection of fraud, separation of duties, and rotation of employees in an organization. Finally, I have learnt that in auditing, not all cases of fraud are straightforward and easy to detect.
In Edith Chase case, she was an experienced employee with very specialized and singular knowledge regarding payroll functions. Hence, she was able to devise a complex fraud that was hard to detect. The situation was exacerbated by the fact that she had control over her payments. Therefore it can be concluded that every accounting system is prone to abuse by an individual with the right knowledge. Firms should take appropriate measures to protect themselves from fraud, such as through the use of employee rotation.
Simmons, A. (2015). Creative embezzlement. Fraud Magazine. Retrieved from http://www.fraud-magazine.com/article.aspx?id=4294991086