How the Worm Got into the Apple

A husband and wife started a smell printing business, having been in the printing world for quite some time and with an excellent relationship with their bank. They owned their own house, had a large loan to start the business and had various lines of credits. At that stage of the business, the wife kept the books. As the company grew and prospered, they decided to hire a bookkeeper so the wife could spend more time marketing the business. The bookkeeper was a gem- the books were always in good order and she was easy to work with. Her responsibilities were gradually increased and she became controller with a suitable salary and bonuses.

The owners also had adjusted their accounting system to permit her to write checks. Which would be signed by the husband or wife. Unfortunately, their trust and friendship with the bookkeeper blinded them and mad them carless. They did not review the monthly bank statements. This was the collection, banking and check-writing in the hands of the same person. However, this was not a classic fraudster; this was a 44-year old divorced woman waiting for the good life to come her way. She started to forge the owners signature on checks and hid them form the owners. She paid own credit card bills along with legitimate business payables. This fraud continued for four years and almost $ 500,000-money that was not available for reinvestment, for maintaining loan covenants and paying off debt, or for salary increases or bonuses. Ultimately, the bookkeeper was taking more money than the company had coming in generating overdrafts and NSF fees. When she realized she could not repair the damage, she disappeared. On the day she left, the banks relationship officer called the owners to discuss the overdrafts and huge NSF fee, $ 1,600 in the past month alone. Upon further investigation, the owners wanted to know why the bank had honored checks with such obviously forged signatures. A lawsuit ensued, demanding reimbursement of the NSF fees and the $ 500,000 withdrawn by the bookkeeper. The bank asserted it was up to customers to be aware of usual disclaimers and that the Uniform commercial code protected banks from negligence of their customers by limiting liability for forged checks to one year and even then, only if the customer identified the checks and signed s forged check affidavit. The case was settled after the offered some small restitution to the owners.

Required:

1. How did the warm get into the apple?
2. How did the accountant misappropriate the cash without the notice of the owners?
3. What fault did the owners do?
4. What should have the bank done?
5. What lessons are learned from the above case study?