What internal controls might have stopped a Cargill accountant from embezzling $3.1 million?

Source: http://www.timesunion.com

Cargill, Inc., is the largest privately held corporation in the United States as measured by revenue. According to Wikipedia, if it were a publicly-held corporation, it would rank number 12 on the Fortune 500. In addition to its agricultural business, it also deals in energy, food ingredients, financial services, and a broad array of other ventures. It is based in Minnesota, but operates all over the world.

One of Cargill’s offices is in Albany, New York. Diane Backis, 50, was an accountant at the Albany Cargill office for more than ten years. Her responsibilities included creating customer contracts, generating and mailing invoices, and receiving/processing customer payments.

In November 2016, Backis pleaded guilty to fraud, admitting that she stole $3.1 million from Cargill. In the plea agreement filed in the United States District Course for the Northern District of New York in late November 2016, Backis admitted the following facts:

During her employment at Cargill, Backis would intercept customer payments intended for Cargill and deposit them in her personal bank account. She deposited hundreds of customer payments, totaling more than $3.1 million.

As part of the fraud scheme, Backis would create fraudulent invoices each week and mail them to Cargill’s customers. She often charged customers prices below Cargill’s costs, causing Cargill to incur a significant financial loss over the ten-year period (in addition to the $3.1 million of customer payments she intercepted.) It is estimated that this financial loss from the fraudulent pricing cost Cargill more than $25 million over the ten-year period.

The fraudulent invoices directed customers to send their payments to the Albany office, in violation of Cargill’s corporate policy requiring payments be remitted to an out-of-state lock box maintained by a third-party financial institution. Backis diverted some of these payments to her personal account.

To maintain her scheme of diverting funds, Backis misapplied customer payments to the wrong customer accounts and then would send a correction to the corporate office.

Backis also made false entries into Cargill’s computer system, indicating that customers were paying significantly higher prices than the actual low prices she charged in the fraudulent invoices.  She would also reverse adjustments she made to cover the discrepancies.

Questions

1. What procedures allowed the Cargill accountant to embezzle the funds?
2. What changes to accounting procedures do you think Cargill could make to prevent future embezzlement of this nature?

Instructor Resources

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