Question

(Subject) Fraud Examination

Cash Larceny Case Study

Case Narrative

Dr. David Glabman had always been skeptical about his employees stealing money from him until he hired Shirley. When his previous receptionist left his practice, Dr. Glabman and his wife, his office manager at the time, were looking for someone to fill the position. They found Shirley through a temp agency. Because of her commitment and hard work, Dr. Glabman decided to hire Shirley as his new receptionist after only two weeks of observance. Shirley’s main functions as the receptionist were coding, filing insurance, and recording charges and payments. Mrs. Glabman occasionally checked Shirley’s work and found no mistakes. After a few years of working for Dr. Glabman, Shirley was promoted to take over Mrs. Glabman’s position as office manager. Shirley’s functions expanded to handling collections, managing contracts, and converting Dr. Glabman’s practice to a new computer system. Dr. Glabman was very impressed with her devotion to her work. In fact, Shirley “was so devoted that she never left the office until her work was done, and rarely took any vacations” (Glabman). Even though Shirley took over as the new office manager, Mrs. Glabman continued to check over Shirley’s work for several more weeks. She specifically concentrated on Shirley’s day sheets. However, when Mrs. Glabman took a four-month fellowship in another state, Dr. Glabman took over the bookkeeping, “but no one audited the day sheets [as] Shirley continued to post charges and payments and prepared the deposits.” (Glabman) Mrs. Glabman returned to Dr. Glabman’s practice after a year and decided to check up on his practice’s finances. She immediately found obvious differences between what the patients had paid in cash, as recorded in their superbills, and what cash that has been deposited, as recorded on the deposit slips. Surprised, Mrs. Glabman went into a further investigation by checking the computer records. She found that some of the copayments had been adjusted and some had never been posted. Alarmed by the discovery, she looked back over the day sheets dating back to when Shirley first became the office manager. She learned that $5 to $10 weekly would be missing at first, growing to approximately $200 a week. The estimated loss was about $10,000 over the year. Distraught at this point, Mrs. Glabman called several of their patients who had paid cash the previous week and requested them to send copies of their superbills and receipts to Dr. Glabman’s home. She discovered that even though some of these patients were billed for two different kinds of services, Shirley would only record one of them and pocket the difference. Both Dr. Glabman and Mrs. Glabman were “very disappointed to discover that someone [they] had trusted had violated [their] confidence” (Glabman) When Dr. Glabman and his wife hired an attorney to confront Shirley about the ‘missing’ funds, Shirley calmly denied the accusations and claimed that she could not account for the missing cash. The attorney then terminated Shirley for gross negligence and ordered her to gather her belongings and leave immediately. Dr. Glabman “met with the staff and told them [Shirley] wasn’t coming back, apologizing that [he] couldn’t say more.” (Glabman) He also decided not to report this incident to the police. That was not the end of the story. After the incident, Shirley hired an attorney to fight for the $3,000 unpaid vacation and bonus she claimed Dr. Glabman owed her. She even filed a claim for unemployment insurance. A few months after the incident, Dr. Glabman realized that his insurance policy covered reimbursement for embezzlement. He filed and received a portion of the $10,000 loss. However, it wasn’t until Dr. Glabman’s insurer sued Shirley for the reimbursement that he found out that Shirley had declared personal bankruptcy several years earlier. He also learned that Shirley had a vast amount of debt due to her rich lifestyle consisting of an expensive car, jewelry, and cosmetic surgery.

Question: What could have been done to prevent this scheme from occurring in the first place, and how could it have been detected earlier?

Answer 1

Dr David Glabman should have followed following steps -

1)   Segregate Accounting Duties- Business should have at least two persons handling these functions interchangeably, keep the handling of cash and accounting functions totally separate.

2) Know your employees - Background checks should be performed for all staff handling cash or managing payments (and bank account information) from customer

3) Maintain Internal control - This includes restricting access to financial account data, establishing multi-person sign-off on expense reimbursements

4) Scrutinize Bank Accounts - Simply letting staff know that reviewing check activity is part of the accounting review process can help prevent fraud

5) Audit the Books regularly

6) Train Employees to prevent fraud