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The Cost of Unrecognized Accounting Errors

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Many people dream of the day their bank account doubles or triples in size. For Stephen Foster, a supermarket warehouse employee, having it increase by an astounding $1.3 million is a tale for the history books.

Like any other payday, Foster’s paycheck was directly deposited into his bank account. However, his girlfriend discovered that in fact a $2.3 million stipend was appearing on his statement. After taxes, his take home equaled $1.3 million.

Without hesitation, Foster immediately contacted his company and explained the mistake. Within hours the money was back in corporate hands, and Foster got a second bonus for his honesty – a case of beer and a bottle of champagne. Not exactly an equal exchange, but the five-year employee gets high marks in the honor department.

While the idea of keeping such a big unexpected bonus sounds like the perfect holiday treat – most employers are entitled to take back such a windfall if it’s indeed an error. Check those direct deposit agreements you signed – they usually state that employers reserve the right to correct any deposit errors without even telling you.

Banks have their own rules too – giving direct depositors five days to correct errors. That means Foster probably did the right thing by informing his employer about the error. An amount that big wouldn’t have gone unnoticed on the books – and that would have been one heck of an overdraft penalty had he withdrawn the cash.

There is no doubt that Foster’s honesty is commendable. With the enormous amount of additional cash this paycheck provided, its understandable why he felt compelled to turn it back over to his company. Yet, what would have happened if this mistake went unrecognized by Foster? Imagine for a moment that the additional amount was either not large enough for him to truly recognize or large enough to see, but small enough to believe it a surprise bonus or repayment of some kind.

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© Flickr user Banalities

Though the question above is hypothetical, the fact remains that if an employee receives extra in pay and withdraws it from their account, they may be in for another surprise: overdraft fees. As the article notes above, “most employers are entitled to take back such a windfall if it’s indeed an error.” So, essentially, the employee is not only responsible for paying back his/her employer for the mistake, but also for any bank penalties that accompany it. Of course, this scenario seems simple enough. If you choose to spend money that isn’t technically yours, the responsibility for returning it is also yours to claim. Yet, why should a company’s failure go unrecognized while it’s employee suffers the consequences?

We have previously covered these types of workplace productivity failures and government productivity failures that threaten all types of business consulting partnerships. These mistakes may be innocent enough, but in the end, someone inevitably pays for them. Regardless of whether they’re complete mistakes or malicious behavior, the results can be the same: Major problems for everyone involved. Assuming malicious behavior isn’t the case, it’s important to find ways to seek out and prevent errors such as the major one we’ve noted here. Even if the mistake isn’t in the millions, thousands of dollars is certainly something you don’t want misplaced either.

If you or your company needs assistance in avoiding simple errors that can wreak havoc on differing bankbooks, contact our business process improvement consultants today. We would love to find a way to help you out. It’s always better to know rather than speculate on whether or not your workflow and procedures are sparing your valued stakeholders any frustration or problems.

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