The bookkeeper of a construction company knew there were hundreds of transient workers on the payroll at any given time. She also knew that at any point in time many workers dropped off the payroll and many more joined. She also knew that no one was checking her work. She handled the payroll, used the owners signature stamp on checks, and hand delivered the checks the various job sites. The bookkeeper kept a handful of former employees on the payroll, both male and female. She even paid their union dues and payroll taxes. However, instead of delivering these checks to the job site, where of course the employees no worked, she endorsed the bank of the checks and deposited them into her bank account. She was friendly with one particular teller at the bank branch and used this teller exclusively to deposit the checks. Several people at her employer were curious as to her new executive automobile, new home and rumored house at the beach, which she passed off as the result of her husbands large win at the casino. However, it took a prolonged illness and enforced absence from the office for a temporary bookkeeper to question why nonemployees were still on the payroll. She was found out.

1) Identify risks and/or red flags in this case that provided the opportunity for fraud.

2) Identify controls that needed to be put in place that might have mitigated this risk.

3) What is a way to transfer risk of employee theft to a third party?