Pay to the Order of…

Joan M. Renner, CPA, CGMA, Director 501(c)(fit!)

In April 2013, bookkeeper, Ladonna Faye Chandler, pleaded guilty to stealing more than $300,000 from a Sacramento California small business.

How did she do it?  Altered Checks!  Controlling all aspects of her employer’s finances, Chandler altered outgoing checks so she could cash them herself.  She also stole incoming checks and deposited them for her own use.   Chandler was sentenced to 21 months in prison and full restitution.

Just last month, outside bookkeeper, Natalee Crumley pleaded guilty to stealing more than $420,000 from two clients in Great Falls, Montana during 2015 and 2016.

How did she do it?  Forged Checks!  Crumley wrote 112 checks to herself and just forged the signatures.  As bookkeeper for the outside accounting firm, she concealed her theft by recording the checks in Quickbooks as payments to vendors.  Prompted by a call from their bank about checks written to Crumley as well as unexplained business losses, the two victimized companies found numerous checks to Crumley drawn on their accounts. 

Crumley says the money’s all gone, spent on lavish vacations, jewelry, home furnishings and a $25,000 trip to the Final Four in Dallas.  She faces up to 32 years in federal prison and a fine of up to $750,000.

Think this won’t happen in nonprofits?  Think again.  Check tampering is the top asset misappropriation scheme facing nonprofits today, with victim nonprofits losing more than $150,000 on average according to the Association of Certified Fraud Examiners.* Once a check is signed it’s as good as cash.  A perpetrator can:

  • change the payee to their own name,
  • add their name to the payee line “in care of”, or
  • if it’s a credit card payment, add their account number instead of yours.

If the perpetrator also keeps the books, he or she can cover it up and you may never find it.

What Can We Learn?

Treat signed checks like money.  Don’t return signed checks to the person who keeps the books.

Treat blank check stock like money.  Lock it up and monitor the check numbers used.  Follow up on out of sequence checks.

Use your bank’s positive pay service to ensure that only authorized payees are paid.  Be sure the bookkeeper does not authorize the payees!

Get rid of paper checks all together.  Set up online bill pay with two levels of permission at your bank.  One person can prepare payments and another can release them.

Implement management review.  Review bank activity online including check images.  Look for any unpaid beginning balances on vendor invoices and credit card statements.  Follow up on old accounts payable items or calls from vendors about delinquent accounts.  Review payments by vendor periodically for amounts higher than expected.  Follow up on budget overruns.    

Small organizations may need to enlist Board members to help with anti-fraud controls. If a second employee is not available to review and approve a transaction, a Board member may need to step in to review and approve. Online processes make it easier to log in and oversee transactions.

Learn more about fraud prevention controls in our in our 501(c)(fit!) PLUS on-demand webinar, You Just Lost $1 Million—fraud prevention for CEOs. 

Learn about fraud warning signs in our FIT! TIP from May 8, 2017, Fraud Flags? 

Learn about the most common types of nonprofit frauds in our 501(c)(fit!) PLUS on-demand webinar, You Just Lost $1 Million—fraud prevention for CEOs. 

One in five nonprofit frauds involves theft of incoming checks.* Find out how in our FIT! TIP from February 27, 2017—Spare Change.  

Get more FIT! TIPS.  Join our 501(c)(fit!) community. 

*yes, it’s true, per the Association of Certified Fraud Examiners Report to the Nations on Occupational Fraud and Abuse 2106 Global Fraud Study. 

© 2017 501(c)(fit!) All Rights Reserved.