What does an ex-law firm manager from Lackawanna County Pennsylvania have in common with an Aide to the rock band U2’s bassist? They are serving time for embezzlement! Unfortunately, too many times, law firms don’t press charges when they find out they’ve been embezzled for fear that their clients will wonder how they can handle [...]
What does an ex-law firm manager from Lackawanna County Pennsylvania have in common with an Aide to the rock band U2’s bassist? They are serving time for embezzlement! Unfortunately, too many times, law firms don’t press charges when they find out they’ve been embezzled for fear that their clients will wonder how they can handle their case when they can’t even handle their own employees.
The problem does not just lie with the large law firms, it is often found in smaller firms too. Here are a few habits you can adopt that will minimize your risk for being embezzled:
1) Do background checks on anyone working with your billing or accounting records, even if it is an outside company. Even if they came recommended by a colleague, another firm, or someone else you know. If you bond your employees, this will be a requirement.
2) Separate of duty – don’t allow the same person who writes the checks to also reconcile the bank statements.
a. If you are restricted to resources and have no other choice, then send the bank statements to you first, or someone other than the person who will be reconciling the accounts.
b. Designate them the auditor, to verify the actual physical or scanned copies of checks that cleared to the bank statement before sending the package to the person responsible for reconciling the bank accounts.
c. What should the auditor be looking for?
i. You want them to compare who the check was written to on the physical or scanned check, to the manual or automated check register. It is common for people to enter in the check to a vendor that looks real in a system but the actual check reflects something else. Why this step is important is if the person reconciling the bank account is the same person who writes the checks
ii. The other more obvious are checks written to people or vendors that are not familiar. This should cause for some additional investigation.
3) Don’t ignore Petty Cash! Some firms have a sizeable petty cash fund limit, some in the thousands if they are providing cash advances to attorneys going out of town on client business. Just like the bank reconciliation separation of duties, be sure to have someone else reconcile the petty cash other than the person who holds the key. Even if you have to train another staff member that this job is not part of what they normally do.
4) Embezzlement doesn’t have to be cash – if you have someone working in your billing department and they have a family member or close friend being represented by the law firm, do not let them do the billing. Embezzlement comes in many forms. They can write off time, write down bills, etc. This too is embezzlement.
5) Make it your business to know your business! Schedule a meeting with your accountant, bookkeeper, billing clerk, etc. If you schedule recurring meetings and ask them to go over the numbers with you, the less likely they are to embezzle from you. This keeps them honest.
And please remember, not all employees who have access to your law firm’s financial and billing records are bad. There are very few who fall into this category, but put some protocols in place that can minimize and prevent embezzlement.