Forensic Accounting Report

Vice President and Trust Officer John Stuart, of Insights Bank and Trust, confessed to embezzling funds from 25 trust accounts for more than five years, providing forged statements for those accounts for the entire period. In total, he took more than $350,000. If funds were needed to meet a request by one trust account holder, he would transfer funds from one account to another.

First of all, the Trust Department serves as an important profit center for the bank.

Like his fellow bank employees, John was knowledgeable, hard-working and committed to the bank and its success, reflecting the work ethic and values of the McCard family members who own and run the bank.

Everyone on the bank’s senior management team recognized John’s expertise in building the bank’s trust business and administering the Trust Department’s affairs. They attributed the department’s success completely to John; as a result, John was given free rein in running the department.

Evelyn Avery, the bank’s second trust officer, essentially worked as John’s administrative assistant. She was a relatively new hire, joining Insights several months prior to this discovery. Although she had four years of trust experience and was a skilled trust officer, Evelyn had little or no contact with the bank’s trust customers and was given only menial tasks to perform. Given the tasks she was assigned, she thought that it was unusual that John always completed the mailings; she even asked John if she should take over the mailings, but he refused. When the Trust Department’s problems were discovered, Evelyn was interviewing for a trust position at other banks.

John did not delegate his responsibilities and tasks, which is one reason why Evelyn was underutilized. He was intimately involved in every facet of the Trust Department’s operations. He did everything and made it clear that the department was his.

An examination report from nearly a year ago noted that John was a highly qualified trust officer but expressed concern that he was overworked. The report directed the board’s attention to addressing John’s workload and expressed concern over John’s omnipresence in all of the Trust Department’s operations and the control issues that it presented.

Bank management’s response to the examination report was to pressure John into hiring a trust officer, Evelyn. However, he did this only after several months of cajoling and much resistance. Bank President Hi McCard noted that it was the first time he could remember that anyone argued so strongly against hiring someone to ease his workload. The way it was, John was never away from the bank for more than one or two days at a time; his absence from the bank due to hospitalization was the first time he had been gone from work for more than four consecutive days in almost five years. Other than forcing John to hire an additional trust officer, management took no action to interfere in the Trust Department’s operations.

While Insights Bank is too small to have an internal audit staff, bank officers were periodically asked to perform short reviews of areas not under their supervision. These were generally well done and often resulted in findings that led to improved risk management. Because John was always buried under his workload, he never did reviews of other departments. Moreover, he discouraged reviews of the Trust Department, arguing that it was one of the bank’s income-producing gems and that attention should be directed to areas obviously needing more attention.