PrintJules B. Olsman looked at the room full of his peers who had gathered to hear him speak about protecting themselves from employee embezzlement.
Perhaps they were hoping that he would, as sometimes happens at professional development conferences, state the obvious. Maybe he'd tell them that they could hire a great accountant and sleep well every night. Or there was some magical software program that could track and alert them to employee theft.
Instead, he told them to do the unexpected: Fire your CPA.
Not all CPA's, mind you. Olsman just suggested that if your accountant has worked for you for five years or longer, it's possible that you've become too complacent about your financial business.
Olsman, of Berkley-based Olsman, Mueller, Wallace & MacKenzie, said he has learned about complacency the hard way. His unwanted claim to fame was a bookkeeper, who had worked for him for eight years, managing to embezzle more than $2 million from his client trust account.
Upon investigation, Olsman learned that she'd probably been stealing from him since day one, but he didn't know it until the day a check from that trust account bounced.
His story wound up on front page of the local papers, and on CBS' "Evening News. "
He's a changed man, and he's spread- ing the word, encouraging his peers to change, too.
When it comes to protecting yourself against employee embezzlement, there are a few New Year's resolutions you can make, though they'll be more difficult than kicking habits in your personal life.
Take your own advice
That's what Kenneth F. Neuman, of Southfield-based Neuman Anderson PC, tells his clients: "If you would tell a client to do something, do it for yourself. If you tell your clients that they need to implement internal controls against embezzlement, you should be doing the same thing. "
Have bank statements mailed to your house - something, Neuman admits, the mere thought of will make most lawyers cringe.
"But this all comes down to fundamental accounting concepts," he said. "So even if you shudder to hear the 'A-word' - accounting - do it anyway. "
He adds that as long as the statements are showing up at your home mailbox, you may as well read them.
Understand what accountant does
Lawrence R. Donaldson, partner at the Mount Clemens office of Plunkett Cooney has spent much of his career defending lawyer and accounting malpractice cases.
On the accounting side, most of the cases arise as the result of an accountant's failure to detect embezzlement, he said.
"Most people don't understand auditing standards. There is compilation, review, and an audit," Donaldson said.
In a compilation, the accountant doesn't test any of the information.
"In a review, the accountant does apply analysis and inquiry, like the ratio of net profits to gross revenue," Donaldson said. "But that wouldn't necessarily point to any embezzlement if those numbers were suddenly changed. "
Then, he said, there's an audit.
"The accountant is not looking at every transaction, but they'll observe things like the taking of inventory or confirmations in accounts receivable and accounts payable," Donaldson said. "The object of an audit is not to ensure the accuracy of each and every number. It's to express an opinion that the financial statements taken as a whole are free of misstatements.
"In the engagement letter," he added, "the accountant says, 'Our engagement cannot be relied upon to disclose errors, fraud or illegal acts ... '"
So, he said, ask yourself: What are the accountant's responsibilities? If you have the background and understand what the accountant is supposed to be doing, you can appreciate that the accountant is probably not going to find embezzlement.
Trust has limits
Know that the embezzler is almost always a trusted employee. So, Olsman said, everyone is suspect.
His bookkeeper had worked for him for years. She was a grandmother, and was well-liked. And she had a signing limit of $200 on checks, but those checks gave her access to all of Olsman's accounts. So now, even his assistant who has worked for him for more than 25 years can only be a signatory on an account with a few hundred dollars in it.
"Everyone says, 'I trusted this person and I treated them like family,'" Donaldson said. "But they're not. They're your employees, and temptation is everywhere. "
Get over the embarrassment, fast
The day after Olsman knew about the embezzlement, he called the Attorney Grievance Commission. And he reached out quickly to let his peers know what was happening. He wanted there to be no doubt that clients would be paid, and that he would make good on his responsibilities.
"I had to write out a check for a half- million dollars, and that was from my own money," Olsman said. "You have no idea how much that stings. "
Also, it was crucial to protecting his reputation and the reputation of the bar, because Olsman believed his bookkeeper had been stealing from other clients besides him.
"I was too determined to get to the bottom of it and get past it to be embarrassed," he said.
Hire an auditor
"The era of a personal banker who pays attention to you is gone," Olsman said. "If we had a personal banker, he or she would have looked at these transfers and said, 'What is Jules doing sending money to Saudi Arabia?'"
Olsman gets monthly reports from a forensic accountant.
"Just the fact that he's looking over the accounts has a chilling effect on someone's criminal plans," he said.
Know your banking rights.
Mostly, know that you don't have any. You have very little time to correct an error in a statement, Olsman said, "[a]nd you're agreeing to arbitrate. You waive your right to a trial by jury. You give up every right you have. "
Neuman agreed, adding, "If you want to go after your bank for a bad check, you only have 30 days from the day you get the bank statement. At 60 days, it's pretty fuzzy. And at 90 days, you're out of luck. "
Segregate duties, get insurance
Bring in your liability carrier and get an employee dishonesty policy. Bond your bookkeeper, if you can.
"You have a Girl or Guy Friday who does all the bookkeeping, handles the checks to clients and suppliers and handles the bank statements? You're vulnerable," Donaldson said. "You've just put all the tools that could be used to steal in the hands of one person. "
Don't let anyone have access to a signature stamp. Simply put: Make time for oversight. Have a plan in place so that you're not relying completely on other people.