How Does a Finance Director Steal $800K?

By Mark Lowers,

stolen funds

The short answer is that it is much too easy if basic controls are missing.

Cincinnati.com summarizes the missing controls in the case of Covington, Kentucky’s former Finance Director Bob Due in the lead paragraph of the story:

The city of Covington gave complete control over millions of taxpayers’ dollars to one man for more than a decade – an “inexcusable” error that resulted in nearly $800,000 embezzled, the Kentucky auditor said.

This is a classic story about an opportunist who defrauded his employer of almost a million dollars, yet avoided detection for years until he made a mistake in the summer of 2013. All of this loss could have been prevented with standard controls.

Going Solo

For 13 years, Bob Due was able to take money from the city right under the noses of four different mayors and four city managers. All told, he wrote 68 checks to himself, relatives, or fake vendors. In the aftermath, the audit revealed a slew of red flags that should have signaled danger:

  • Mr. Due was the IT system administrator with control of financial software, with no oversight.
  • General IT security was inadequate, with Due as system administrator.
  • Payables procedures were lax, such as the lack of a check register to compare beginning and ending check numbers.
  • The Finance Department had no written policies for revenue and collection.
  • The city did not have a credit card policy or track issued cards.

As Auditor Edelen put it, “What we have here is a breakdown in oversight. Mr. Due did not have a boss.” … Continue reading

Due Diligence as a Way of Life

By Andrew Carraway,

due diligence

The phrase “Due diligence” sounds complicated but in reality, it is simply the process of doing your homework before you make a major commitment, either on a business or personal level.  Due diligence can be as simple as just asking the proper questions and making sure that a situation is “not too good to be true.”  This idea of checking into the facts behind a transaction to ensure it is fairly valued is the source of the old adage, “let the buyer beware.”[i]

Most of us practice due diligence even though we may not think of it that way.  For example, most people these days will do some research on the internet before making a major purchase, like buying a car.  We scan websites to get an idea of a fair price, the dealer cost, and any low interest financing deals so we can be prepared to counter the ”rock bottom price” offered by the car salesman.   In this process, we are doing our “due diligence” to get the best deal possible.

Due Diligence as a Defense

There are important legal uses of the term “due diligence.”  It began as a term describing a legal defense in the Securities Act of 1933.  Its purpose in that Act was to give broker-dealers a defense against an accusation that they had not disclosed information in a securities transaction.  If they had performed “due diligence” in researching the company, they could not be held liable for information they did not discover.[ii] … Continue reading