An Embezzlement Case StudyExpense Management
Lack Of Internal Controls Leaves Company Vulnerable To Embezzlement
A case of corporate fraud of a momentous scale demonstrates to small businesses the importance of having internal controls in place to prevent embezzlement and fraud. This case involved Sujata Sachdeva, the vice president of finance for KOSS, who managed to embezzle almost $34 million over five years from the company using a variety of different means.
How corporate theft happens
Sachdeva used a variety of schemes to embezzle money during her tenure with Koss. She issued cashier’s checks to various vendors supposedly paying for the goods, but in reality Sachdeva had falsified purchases for herself and made wire transfers to pay her bills— even to major companies like American Express! In addition to the check scam, she also misappropriated petty cash. The company had few internal controls for the approval of cashier’s checks and wire transfers, and it only required the CEO’s approval for invoices of more than $5,000 but not for wire transfers or the checks she was writing— making it easy for Sachdeva to steal funds.
This lack of internal controls was a severe lapse, making the company especially at risk for embezzlement. The company was also using accounting software that was more than 30 years old and that did not lock the data at the end of each month, which meant that Sachdeva was able to go in later and make changes to the digital records to conceal her activities. With the company’s petty cash, Sachdeva concealed her tracks by approving expenditures that were not used for business costs. The fraud was only discovered in 2011 because American Express notified Michael Koss, the CEO of the company, that Sachdeva had been paying her personal American Express expenditures with wire transfers from the company’s business account. Because of the lack of controls, it is likely that the embezzlement would have continued for far longer if American Express had not become suspicious.
The real risk of embezzlement for small businesses
The Koss embezzlement scheme that was perpetrated by Sachdeva illustrates several important things for small businesses. In many of these cases, high-level officers or accountants are the perpetrators of these crimes and are trusted individuals. More than 40 percent of check scam and corporate fraud cases are committed by these types of professionals. The Association of Certified Fraud Examiners (ACFE) found in one study that four-fifths of the organizations that had been victimized by embezzlement were small companies, and 38 percent of the cases involved direct thefts or misappropriations of the businesses’ money.
How Bento for Business can help
In addition to using up-to-date accounting software and internal controls, small business owners may also want to consider taking steps to prevent employee thefts by using business debit cards from Bento for Business. These cards, along with Bento for Business’s proprietary app, eliminate the risk of check scams and dramatically reduce the risk of other fraud in a variety of ways:
- Employers are able to set controls on what employees may purchase with the cards.
- They keep an unchangeable and accurate record of how the business’s money is spent.
- Small business owners can check the employees’ individual cards at any time on the application’s platform, allowing them to see in real time how the money on the cards has been spent.
- The cards may also be turned off at any time with a simple click of the button.
- Funds held within Bento are FDIC insured to at least $250,000 through The Bancorp Bank; Member FDIC.
- All transactions and dealings with Bento are SSL-encrypted.
- Check Out Our Business Fraud Calculator – See What Your Fraud Risk Is In One Minute
- 10 Questions to Ask Yourself about Business Fraud and Employee Theft