How to Help Prevent Employee Theft at Racetracks: Lessons from a $520,000 Fraud
Tyrone Bell, Account Manager – Fidelity / Crime Division, Great American Insurance Group
Racetracks have an increased exposure to employee theft due to the amount of cash running through the operation. Cash exposures include money handled by the cashiers as well as money stored inside their vault. However, there is also another exposure that seems less obvious. Horsemen’s accounts are set up and held by the racetrack on behalf of individual horse owners to allow racetracks to easily transfer money to the horse owners for their earnings after a race. Since money in a horseman’s account is held by the racetrack, strong controls are needed to prevent a dishonest employee from taking advantage of a potential weakness.
Horse Racing Tracks: Claim Scenario
At a popular racetrack in the Midwest, an employee was able to capitalize on the racetrack’s lack of controls and steal over $500,000 from the horsemen’s accounts.
The employee worked at the racetrack for nearly 15 years and was responsible for transferring winning payments to the individual horsemen’s accounts. The employee also had the ability to make adjustments within the accounts without any additional supervision. With this in mind, the employee found that she could initiate small transfers out of the individual horsemen’s accounts and into her own bank account without anyone noticing. To minimize employee theft, it is always crucial to make sure that there is proper oversight for all banking transactions so that one person cannot complete a task without supervision. Lacking oversight is one of the reasons why this scheme went unnoticed for several months without anyone else having a clue.
The Importance of Accounting Controls and Audits at Racetracks
To assist in preventing a scheme like this from happening, racetracks need to have strong accounting controls in place. This includes implementing multiple levels of authority so that a second person reconciles the horsemen’s accounts to verify that the payments being made are accurate. A racetrack needs to have a second person reconciling the horsemen’s accounts at least every 30 days, and if possible, after every race. Implementing these controls will ensure that if there is a theft, it will be caught within a short period of time instead of the theft accumulating for months until the dishonest employee is caught. The longer the theft goes undetected, the larger the theft loss will become.
To further deter and mitigate theft losses, racetracks should also implement a routine audit of the horsemen’s accounts. The accounts should be reviewed by someone who does not have the ability to make transfers or reconcile on a monthly basis. Having another set of eyes reviewing the accounts will not only help mitigate against theft, but it will also help prevent errors and discrepancies that may occur.
Having these controls in place could have prevented this employee from stealing $520,000 from the horsemen’s accounts over an 8-month period. The theft was only caught when the dishonest employee was out sick, and another employee noticed the unauthorized transfers.
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The above narrative is fictional; however, it is based on actual losses that have been reported.