Don't Mistakenly Cover Up Embezzlement - Why Mislabeling Debits May Hide A Serious Crime

Laura Marie Means, a former bookkeeper for a prominent Wyoming hospitality business, was sentenced for stealing $1.5 million from her employer.

Means was hired in 2015 to work as a bookkeeper, which allowed her sole control of payroll, bank accounts, and tax reporting.

In February 2019, Means moved from Wyoming to Hawaii. Her job allowed Means to continue working in her role so long as she traveled back to Wyoming once a month.

During that time, Means used her remote working status and lack of oversight to execute her embezzlement scheme.

Means routed unauthorized transfers into her bank account, disguising them by altering the QuickBooks accounting entries and labeling them as standard business expenses, including "supplies" or "invoices".

Means also used a separate, unapproved bank account to divert company money and to issue herself unauthorized payments, which included double salary payments and non-authorized bonuses.

Source: https://www.justice.gov/usao-wy/pr/former-jackson-hole-bookkeeper-sentenced-nearly-four-years-federal-prison-148-million

Commentary

When odd or suspicious accounting entries are discovered, organizations may want to quickly correct them to balance the books. Balancing the books must take "second chair" to making sure expenditures are verified and to preserve evidence.

Altering books to cover for mistakes makes it more difficult to uncover fraud, like embezzlement. Investigators must be able to distinguish between the original fraudulent entry, later changes, and any corrections. Deleting and irreversibly altering the original entry removes that ability and will negatively affect the quality of the investigation.

In the above matter, the bookkeeper was concealing her embezzlement by labeling fraudulent transfers as business expenses. Her labeling included words like "supplies" or "invoices" which are vague and ambiguous. Obviously, she mislabeled the expenditures to cover up her crime.

Vague descriptions should be red flags for organizations and should prompt an organization to investigate the entries.

It is unclear what method the organization chose to investigate the fraud and preserve evidence, but it is a best practice to involve local legal counsel and qualified third-party accounting or forensic personnel to ensure a thorough investigation is complete before cleaning up any accounts or records.

The final takeaway is that to help promote a proper investigation, organizations should preserve all evidence, including files, bank records, and any supporting communications; document what needs correction separately to preserve the original fraudulent record; and utilize access restrictions so that data cannot be altered after an investigation begins.

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