The Orlando Sentinel reports that the former CFO of Groveland Florida’s Marion Gardens Tree Farm was sentenced to 8 years imprisonment for tax evasion and four counts of mail fraud:
Gary E. Williams, 59, drained the family owned farming company of at least $10.5 million over and eight year span with an elaborate scheme that has cost more than 150 nursery workers their livelihoods in dire economic times.
Assistant U.S. Attorney Robert E. Bodnar asked U.S. District Judge Patricia Fawsett to impose the maximum sentence saying:
He drove an otherwise healthy company into the ground.
In spite of having only a high school education Williams rose from a $20,000 a year employee to Chief Financial Officer with a six figure salary and effective control of the company’s finances.
Federal investigators said Williams forged signatures on bank loan documents, used company equipment as collateral for personal lines of credit, used corporate funds to lease luxury automobiles and used embezzled funds to pay for tropical vacations, gifts of jewelry to two male friends, the services of a chef and the hire of a private jet for a trip to Hawaii.
Now do you see why accountants are constantly bugging their clients to do thorough background checks on employment candidates and institute internal controls?
Segregation of duties – the most important internal control
The proper segregation of duties would have stopped this guy Williams in his tracks. In fact, it probably would have dissuaded him from attempting to steal company funds in the first place.
External auditors often review a businesses framework to determine whether or not there is a proper segregation of duties within the organization. It is the single most important internal control and must be in place to ensure that errors or irregularities are prevented or detected on a timely basis in the normal course of business.
Segregation of duties provides two major benefits:
- Makes it more difficult for an employee to conduct deliberate fraud because it requires the collusion of two or more persons; and
- Makes it more likely that innocent errors will be quickly found and corrected.
Segregation of duties means that no single individual should have control over two or more phases of a transaction or operation. In other words, management should assign responsibilities to ensure a cross-check of duties.
If one employee is able to carry out and conceal errors and/or irregularities in the course of performing his day-to-day activities, then they have generally been authorized to perform incompatible duties.
Some examples of incompatible duties are:
| An Employee who… | Should not… |
| Opens mail and endorses checks | Handle cash receipts Reconcile bank statements |
| Prepares a document | Approve that same document |
| Handles cash receipts | Endorse checks Maintain petty cash funds Receive deposit slips or corrections from bank |
| Prepares bank deposits | Receive deposit slips or corrections from bank Verify cash receipts Maintain petty cash fund Perform audit function Reconcile bank statements |
| Distributes payroll checks | Prepare payroll input |
In small organizations complete segregation of duties is not always possible or practical. In these situations, cross-training, employee rotation and mandatory vacations can achieve a similar purpose.
Here’s some more “blanket” advice: It is never wise to have only one individual within the organization capable of doing a particular job.
3 responses so far ↓
1 Heather Villa // Dec 2, 2009 at 7:33 am
Cross training. You have to do it, not only for security as your example so clearly shows. One of my policies is that all work for clients has a backup trained. Things happen. You need to be prepared.
2 Peter // Dec 2, 2009 at 1:06 pm
Heather,
Thanks for visiting.
I agree with you 100%.
3 AuditMyBooks // Dec 5, 2009 at 9:08 am
It’s the same sad story played over and over again… trusted employee, unfettered access and an appetite for a lifestyle beyond their means.
Great write-up and advice Peter.
Leave a Comment