On Point: Check signing myths and misconceptions

Denise McClure, The Daily Record Newswire

One day in a previous life when I managed a medical practice, an employee showed me how she handled the problem of insurance forms sitting on doctors’ desks for weeks, awaiting signatures. One physician in particular was “not approachable” (I’m being kind) about tiresome insurance forms. The insurance clerk, doing her best to expedite payment, forged the doctor’s name. I was impressed at how effortlessly she scrawled a perfect forgery. Her work-around was efficient and accomplished her goal of expediting payment, but I quickly enlightened her on the error of her ways.

So when my current clients tell me, “No one could possibly steal from me, because I sign all the checks,” I tell them the story of the ever-so-efficient insurance clerk.

Bill Winn, president of Advanced Industrial Supply in Pocatello, could have used this story a few years ago. Perhaps it wouldn’t have taken him seven years to discover that Darwin Knight, his partner and the company controller, was embezzling. He might have been able to prevent damages that eventually soared to more than $500,000.

I applaud the efforts of business owners who sign checks, especially if they review the supporting documents before signing. It’s a great way to keep an eye on expenditures, but it doesn’t guarantee security on its own. Other types of oversight — like reviewing cancelled checks and bank statements — help identify unusual transactions and keep employees from dipping into the financial cookie jar.

Some myths and realities to keep you in the know and in the black:

Myth 1: Requiring two signatures on checks is a strong deterrent to financial shenanigans.


Reality: It can be, if implemented properly. But in the case of Advanced Industrial Supply, the fraudster/controller and the president were the two authorized check signers. Knight’s “extra” checks bore only his signature, but cleared the bank without notice. It’s up to the company, not the bank, to ensure that the “two signatures required” policy is followed. A quick scan of cancelled check images would have exposed the scheme much sooner. More importantly, a periodic review of cancelled checks by the president may have deterred Knight.

Myth 2: Lack of timely financial reporting is no big deal.

Reality: This is a common red flag that something is amiss in the accounting department. Stealing is pretty easy, but concealing misdeeds can be time-consuming. The complexity of living a lie grows more burdensome over time, making it harder for an embezzler to meet deadlines. This was Knight’s downfall: The president hired a bookkeeper to help Knight catch up on work. The bookkeeper quickly identified the ruse and alerted the president to checks that bore only one signature.

Myth 3: Being a good judge of character is a sure way to avoid hiring people who lie, cheat or steal.

Reality: Fraudsters go to great lengths to hide their disreputable sides. Even if they have a gambling addiction, are depressed or feel cheated by life, they come to work smiling. Knight donated much of his illicit cash to charity. In return, he received accolades for his community support and was invited to give motivational speeches. His flaws slipped by even the most perceptive and intuitive people around him. Even after Knight’s 16 years with the company, no one there really knew him.

The ending to this modern-day morality play? Knight lost everything. His wife divorced him, he was excommunicated from his church, and he is in prison. The company survived and is thriving. Financial reports are prepared on time, and a second pair of eyes reviews financial transactions.
Trust, but verify.

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Denise McClure, CPA, CFE, is a forensic accountant and the owner of Averti Solutions, LLC in Boise. She is a frequent author, speaker and trainer on building transparent and accountable accounting processes. For more information, visit AvertiSolutions.com or e-mail Denise@AvertiSolutions.com.