Question: IT at Work

Employee Is a Serial Fraudster

A dental practice with $4 million in annual revenues had fired its bookkeeper after a tax audit revealed to the owners that she'd been stealing over a $100,000 per year for at least four years. The bookkeeper was responsible for all accounting duties and financial reporting for tax purposes. Her work was not inspected closely by external auditors or the owners. No internal control systems, such as controls that would prevent checks being written to bogus vendors or employees, were implemented. The classic red flags (fraud indicators)-lavish vacations, jewelry, and cars that she could not afford-were evident, but ignored by the owners/managers.

The bookkeeper was a serial fraudster having defrauded at least two prior employers-a religious organization and a nonprofit where she'd worked as a volunteer. The defrauded medical practice decided to keep the incident quiet so they did not take legal action against the bookkeeper. That turned out to be a mistake because the bookkeeper used that situation to her advantage. She filed a wrongful termination lawsuit. For several reasons, including not being able to collect evidence (lax internal controls enabled the bookkeeper to destroy evidence), the practice settled the lawsuit by paying her over $5,000. In effect, the fraudster had turned to extortion knowing that the practice was unprepared to fight back. Inarguably, she's now defrauding her current employer.

Questions: 1. How was the fraud detected?

2. How long had it been going on? 3. What were the red flags that suggested the bookkeeper was living beyond her means?

3. What mistakes were made in the handling of the fraud?

4. In your opinion, did the dental practice have an ethical responsibility to prosecute the fraudster?