Checks fly, banker goes to jail … and the bank fails — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Checks fly, banker goes to jail … and the bank fails

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in Employment Law,Human Resources

The former president of Pinehurst Bank in St. Paul will serve 42 months in federal prison following convictions on five counts of misapplying bank funds in a 2010 check-kiting scheme. The resulting losses forced the bank to close in May 2010.

The bank president and a co-­conspirator kited checks between Pinehurst and another bank until officials at the other bank discovered the scheme. The bank refused to honor the $1.85 million in bad checks. The bank president attempted to cover his tracks by fabricating five loans totaling $1.9 million to five fictitious people. An internal Pinehurst audit uncovered the fraudulent loans in January 2010.

That’s when the bank fired its president, but it was forced to recognize the loans as a loss. With the loss on the books, the bank was insufficiently capitalized and regulators closed it.

Note: To prevent employee theft, start from the premise that no one is above suspicion. Every transaction should be verified by two employees and then periodically reviewed by an outside auditor.

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