Forensic Accounting Report

After being confronted with irregularities, Vice President and Trust Officer John Stuart 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.

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. Like his fellow bank employees, John was knowledgeable and hardworking. Senior Management attributed the department’s success completely to John; as a result, John was given free rein in running the department.

John did not delegate his responsibilities and tasks. He was intimately involved in every facet of the Trust Department’s operations. 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. When the Trust Department’s problems were discovered, Evelyn was interviewing for a trust position at other banks.

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 direct involvement 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 ask John to hire a trust officer, Evelyn, which John resisted. 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 get more engaged with 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.