Failed Controls Led to Major Embezzlement John S. Burnett, Associate Editor
The former Head Teller of the Obelisk Federal Credit Union of New Albany, Indiana, was charged November 1, 2007, with embezzling over $7 million in a classic case of inadequate access controls.
According to the office of the United States Attorney for the Southern District of Indiana, Patricia Sherman, of Louisville, KY, began her theft of cash from the credit union's vault in 2003 and managed to remove $7,012,900 by March 2007, when a fellow employee noticed unusually large amounts for vault cash on the organization's general ledger. Sherman was fired immediately after that discovery.
Sherman apparently removed currency from the vault, concealing it on her person, and covered her theft with journal entries to the vault cash account prior to cash counts or audits. She keep careful track of amounts involved, and made entries to reflect the actual cash count before leaving on vacation, reversing those entries on her return. Sherman was entrusted with ordering and accounting for all cash for the institution, and was responsible for reconciling and overseeing vault activity. According to information in the indictment, Sherman was also in charge of reconciling cash counts to general ledger totals.
Sherman reportedly admitted to the embezzlement, and to having squandered large sums gambling at riverboat casinos in southern Indiana. Her alleged actions resulted in the receivership of the credit union, which was eventually merged into another institution in July 2007. If found guilty, Sherman could face up to thirty years in prison and a fine of up to $1 million.
The Obelisk Federal Credit Union was obviously the victim of its own inadequate or nonexistent controls. Particularly in smaller institutions, there is vulnerability whenever one individual has responsibility for too many aspects of the institution's operations. Standard controls over vault cash, coupled with job rotation and competent audits (in this case, apparently the purview of an inadequately trained supervisory committee), could have prevented this embezzlement or detected it in its early stages.
This case also illustrates the value of following up on one employee's suspicion that something was amiss with the vault cash general ledger balance. If that employee had ignored that suspicion or not reported it to officials, even more of the institution's cash might have found its way to the floating Indiana casinos.
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