The Importance of Reviewing Internal Controls

Due to the severe economic downturn businesses are required to reduce staff and cut operating costs in order to maintain profitability.  The normal place to reduce staff is in the administrative areas.  However, as you will read from the article below, maintaining segregation of duties and independent annual review of vendor purchasing agreements and vendor payments is worth the time and cost.  Business owners rely and put their full trust in their CFO or Controller, but sadly, without strict checks and balances the CFO or Controller could devise a scheme to steal.  It is the CEO and Board of Director’s responsibility to make sure internal controls are implemented, followed and reviewed on an on-going basis.  Relying on the auditors to discover theft is usually unlikely. 

For larger companies, it is worthwhile to have an internal audit team, but for smaller and medium sized companies it would be worthwhile to obtain an independent resource.  Obtaining an assessment of the internal controls of your organization by an experienced operational accounting professional allows for an independent analysis of potential areas of concern.  They will review and assess the internal controls of the finance department and recommend and, if needed, implement the changes.  While this will not guarantee the discovery of collusion or individual theft, you will provide the framework to make it very difficult for a perpetrator to start or continue.  Taking a proactive position now will dramatically reduce the chances of having to handle negative publicity, increased legal costs, and a material financial issue in the future.

Please contact Consult Your CFO at (410) 371-0821 should your organization require an operational accounting assessment.    

Ex-CFO at Md. Legal Aid charged in $1.1M scheme

POSTED: 8:27 PM WED, MAY 26, 2010

The former chief financial officer of the Maryland Legal Aid Bureau Inc. schemed to steal over $1.1 million from the organization, federal prosecutors say.

In a criminal information filed late Wednesday, the U.S. Attorney’s office accuses Benjamin L. “Bennie” King Jr., CFO of Legal Aid for 30 years, until 2008, of conspiring with another man, Wendell “Sonny” Jackson. Prosecutors say the men formed an office supply company, overcharged Legal Aid and skimmed the excess money.

Legal Aid is funded by the Legal Services Corp., a congressionally created organization that allocates federal money for civil representation of the poor.

“It’s like a kick in the face, a kick in the head, a kick in the gut, a kick in the teeth, all at once,” said Wilhelm Joseph Jr., executive director of Legal Aid.

According to the information, King’s department at Legal Aid was in charge of administering the office’s office-supply purchasing agreement, prepaying for office supplies and ordering them as needed.

Around 1997, King allegedly approached Jackson, a check-cashing business owner, about starting an office supply firm to sell to Legal Aid. Jackson started a company called Baltimore Office Supply.

“Baltimore Office Supply had no warehouse, no other customers, and in fact, Wendell Jackson, a/k/a Sonny, did not even know how to create invoices,” the information reads. “Defendant Benjamin Louis King, a/k/a Bennie King showed defendant Jackson where to purchase supplies and how to create invoices to Legal Aid.”

Jackson allegedly submitted inflated invoices to Legal Aid, which King paid. King got about 85 percent of the skimmed money, while Jackson got 15 percent. From 2004 to 2007, the men apparently took more than $1.1 million, about a quarter of which was federal money.

Joseph said King’s separation from Legal Aid in 2008 was mutual and had nothing to do with the allegations. He said no one at Legal Aid had any inkling of the scheme until October 2008, when, after King left, employees discovered the discrepancy between supplies received and money paid out.

On advice of counsel, Legal Aid reported the problem to the U.S. Attorney and the Inspector General of the Legal Services Corp.

“We discovered it, we reported it immediately and we cooperated fully,” Joseph said.

Joseph said Legal Aid is audited annually, but auditors missed the problem. The office has now changed auditors. In addition, there is an all-new fiscal staff at Legal Aid, he said.

He said the money skimmed could have paid for an additional one-and-a-half staff attorneys per year for every year the scam went on.

U.S. Attorney Rod J. Rosenstein declined to comment on the case.

Assistant Federal Public Defender Joseph L. Evans, who represents Jackson, said the information makes it appear that his client and King sat down and hatched the scheme together. The reality is more complex, he said.

“Mr. Jackson was initially sort of duped into this and thought initially it was legitimate,” he said. “There came a time … that he realized that it wasn’t OK, but he continued on nonetheless.”

Evans said he believes King is being represented by Warren A. Brown. Brown did not immediately return a call for comment last night.

King’s father, Benjamin L. King Sr., was the first black CPA in Maryland. He died in 2005. The younger King’s siblings are accountants as well.

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