If one employee has control over many interrelated accounting functions, it's possible that errors and abuses will creep in. Segregation of duties is a critical part of any organization's internal financial controls, as it can reduce the likelihood of these events. However, once such occurrences begin happening, it may be necessary for a firm to use investigative tools such as recovery audits to determine how to resolve the situation.
According to the Jackson Sun, Kimberly Hampton, the former financial controller for the Exchange Club Carl Perkins Center for the Prevention of Child Abuse in Huntingdon, Tenn., was sentenced to 10 years in jail for embezzling $80,000 from the nonprofit organization. The source explained that the sentence was suspended, meaning Hampton will be required to serve nine months in jail and spend more than nine years on probation. She has also been ordered to pay restitution.
Pam Nash, president of the nonprofit, told the news provider that took the opportunity to pad her paychecks, which she then hid in the company's software system. As a result of this incident, Nash told the Sun that changes are being made at the organization, including involving more employees in financial processes.
Yale University asserted that segregation of duties can ultimately decrease the threat of "erroneous and inappropriate actions." Because of this, the source advised that businesses ensure no single person is responsible for initiating, approving and recording transactions. Additionally, the same person shouldn't be handling assets, reviewing reports or reconciling balances. By making sure all of these essential operations are assigned to different staff members, leaders may be able to deter crime, as potential embezzlers would need to cross into other workers' areas of responsibility to complete the theft.
No matter how strong a company's financial controls, it's also important to use audit solutions to support the financial health of the organization.