Part 3 of our series on Segregation of Duties. In our recent Fraud Survey, we asked churches to respond to these statements:
“The individual who prepares the checks also mails the checks.”
“The person responsible for general ledger and financial reporting also mails the checks.”
Survey results – A little over 50% of the respondents answered the first question positively. However, the number plummeted to 30% for the second.
Separate Accounting Tasks
You may wonder, “What’s the big deal about who mails the check? After all, if the bill has been approved, reviewed and signed, isn’t the process over?”
NO!
KEY: Signing the checks is NOT the last step in the bill paying process.
Here are two things we have seen happen.
One person with this much responsibility was also skilled in the art of forgery. Some of the checks signed were craftily altered and redirected to pay down his credit card balance (which had ballooned due to a problem with gambling). Because this person was also in charge of all of the accounting process, there was little chance of being detected.
Another thief presented checks to be paid which were dutifully signed by the administrator. But these are not the checks that were mailed. The original checks were destroyed, and replaced with checks written to the bookkeeper’s creditors and to a brother-in-law. As this person was in charge of the general ledger, the original checks were reflected in the cash disbursement journal. The phony ones were not. Obviously, this technique is risky because at some point the vendor not being paid will squawk.
Due to this risk, fraudsters who use this method are very selective in which vendors they pick. For example, in one case a bookkeeper switched checks with their church’s contributions to its denominational national office. Because these payments were voluntary, it took many months before the theft was discovered.
