CASE IN POINT

URGENT: Safeguarding Cash through Internal Control

Darlyn Lopez worked as a cashier for the brokerage firm Merrill Lynch. Cashiers handle cash, so they are highly trusted employees. Lopez was so dedicated to the company that she never took a vacation and never missed a day of work. It took an auto accident to reveal that she was embezzling money.

Lopez stole $600,000 by using a well-known scheme. Here’s how she did it: Merrill Lynch customers made deposits to their accounts through cashier Lopez, or so they thought. Lopez was quietly transferring customer deposits into her own account –manipulating the Merrill Lynch customer records. She kept the scheme going for 5 years. When customers called Lopez whether they got credit for a deposit, she would explain that the missing amount would show up on next month’s statement. And it did as long as Lopez could apply Customer’s B’s deposit to cover money stolen from Customer A.

While Lopez was in the hospital, a co-worker took over as cashier. The new cashier couldn’t explain the missing amounts. All the evidence pointed toward the missing employee. The Merrill Lynch office manager figured out why Lopez never missed a day of work: She has to be present to cover her tracks. After her stay in the hospital, she also did time in prison. All of this could have been avoided if Merrill Lynch had used some basic internal controls. -- "source: Cash and Internal Control by Charles Horngren, Accounting 6e"