Working Knowledge, August 2005

http://www.ala.org/ala/alonline/careerleads/workingknowledge/workingknowledge0805.cfm

Working Knowledge

A Monthly Column about Life on the Job

By Elisa F. Topper
American Libraries Columnist

Elisa F. Topper is director of the Dundee Township (Ill.) Public Library District and a career consultant. Contact her at working@ala.org.

Column for August 2005

Safeguarding against Employee Fraud

I am a newly elected trustee for a small public library. Recent national news stories concerning library employee theft and embezzlement have me very concerned. I trust our library staff, but these reports raise some questions. For instance, what checks and balances should we have in place to guard against employee fraud? As a board of trustees, what red flags should we look for?

Too-Trusting Trustee?

While the librarian image often conjures up certain unwanted stereotypes, “white-collar criminal” isn't usually among them. Yet our field is not immune to this type of crime. Recent newsworthy examples include a director who embezzled more than $320,000 by keeping two sets of books; a library worker who stole rare books and sold them on Ebay; a former director who was sentenced for fraud for not reimbursing travel funds; and another director sentenced for theft for issuing herself two paychecks and using library funds for personal items.
While it may seem as though employee fraud in libraries is a recent development, Palatine (Ill.) Public Library Director Dan Armstrong points out it has been going on for years. “Although instances of embezzlement and the misuse of public funds are rare in the library world, they occur with enough regularity that trustees and administrators need to be aware of this possibility,” he said.

Why do they do it?
Researchers suggest that three elements—the so-called “fraud triangle”—contribute to employee fraud: 1)Pressure or motive, which can take many forms, including a desire to get even with the employer. 2)Opportunity, or a perceived chance to be able to get away with fraud, usually when institutional controls are weak or nonexistent. 3)Rationalization, or the ability of employees to justify to themselves why the action is not a crime.
Naturally, the element that boards and employers have the most control over is opportunity. “We as trustees must have policies and procedures in place to ensure checks and balances,” says Jane Rowland, president of ALA's Association for Library Trustees and Advocates.
Armstrong agrees, adding, “It's always healthy to have trustees who read and understand the financial reports and ask questions about those things that they don't understand. One of the smartest trustees I have ever met always prefaced his questions with a phrase like, 'I know you have probably explained this before, but can you refresh my memory about... ?' It is also important to rotate the position of treasurer among trustees. In the end, that is the best protection an institution can have.”

Prevention guidelines
At a minimum, your organization should adhere to the following guidelines in order to safeguard against fraud. You should also consult your library's auditor for advice specific to your situation.

Check the references of every employee prior to hiring, especially those dealing with money or computer equipment.
Make sure that all purchases are authorized, and set a maximum dollar amount.
Maintain control over blank checks by making sure they are numbered, and review the numbers periodically.
If library personnel have credit card access, have a sign-in and -out procedure; do not allow use overnight unless approved for a conference or similar situation.
The person who keeps the books should not be the person who reconciles the statements, and the staffer preparing bank deposits should not also keep the books.
Conduct surprise audits of petty cash records and the payroll register.
Be aware of employees who do not want to take vacation time, or who show signs of a lifestyle more luxurious than their paycheck might support.
Store computer backup disks offsite. Make sure they are protected from fire, theft, or floods.
Do not rely solely on your auditor's yearly review to detect fraud.
Inform the staff of the policies regarding the use of public funds.