Just to set the record straight, WK&S is a for-profit amusement company. It pays taxes in the municipalities in which it operates. If there are any profits, they are plowed right back into the company.

This is why you NEVER let any one person handle funds without proper checks and balances being in place. It is irresponsible for a volunteer organization to operate this way.

It happened years ago with another volunteer tourist railway I was once involved with. The treasurer was found to be the culprit. He also stole from the local sports team. Lived in a rented house, drove a rented car and leased his office furniture! Zero assets.

Idiot directors signed BLANK cheques ahead of time! When he did not present regular financial reports to members he brushed it off as not a worry, all is fine. BTW this guy was UNKNOWN to the tourist railway, he came to them and volunteered to be treasurer! Loss was about $80,000 I think. Doubt a dollar was ever recovered.

Forgive me if I state the obvious, but I am quite upset for the good guys at Kempton who were caught in this mess (and I dare say, some who had a sense of foreboding that the recent changes were not for the better).

There is a core team at WK&S of talented and dedicated preservationists. I hope they are the ones who lead the charge to move past this awful crime.

The WK&S is special for many reasons. I heartily recommend spending a day there, having lunch at the Kempton Hotel and adding in a visit to Roadside America or the Reading Tech guys... maybe even some evening shopping at Cabela's.

The best way to support the good guys is to go out there and ride the train.

Rob

This likely did not have to happen.

It appears from the narrative that the WK&S failed (as do many, especially when such jobs demand much time for stuff that's decidedly unfun for most people) to recognize custody and recording-keeping are inconsistent duties and should NEVER, NEVER be vested in the same person if at all possible.

Separation of such duties is an essential element of a properly designed and functioning set of internal controls over financial reporting (ICOFR).

If the available supply of people willing requires one person to have both duties, the following are just a few of the steps that will help minimize (not eliminate) the risk of such malfeasance.

1.) Use double signature checks, especially for checks exceeding a preset amount ($1000)

2.) Require board resolution to open new credit accounts with vendors and for purchases that exceed a preset amount, and require evidence of competitive sourcing for such purchases.

3.) Require the use of prenumbered and preprinted purchase orders and receiving reports, prepared by different individuals prior to making payment, especially for large purchases.

4.) Have independent review of receipts and expenditures on as frequent a basis as possible; monthly if possible.

5.) Engage an outside accounting firm to review or audit financial annually.

A good set of ICOFR includes both PREVENTATIVE and detective controls; whose design and operating effectiveness are periodically reviewed and tested. Because criminals are creative, there will always be ways to exploit the holes, but you want to make it difficult to evade the controls and ensure quick detection if somebody succumbs to temptation.

It's important to note that where people are honest, no controls are necessary, but where they are dishonest, none will suffice.

I have a warm fuzzy feeling for the place, I was able to buy a picture Paul Detlefson's The Red Caboose, that I first saw in my Great Aunt's home, now it's on my wall.

From what I have read, the Brits have had similar problems on some of their heritage roads. There was a recent case that resulted in a conviction of a treasurer (the line escapes me at the moment). As an active Director of Old Pueblo Trolley, I keep an eye on the finances as do the other directors. We meet every two months and a detailed treasurer's report is prepared for each meeting. We do have audits periodically for both our control purposes and to provide proof to the various organizations that provide grants to us that we are properly managing our finances. All proposals for projects or request for expenditures above that cannot be covered by petty cash must be approved by our Board.

As for criminal records checks, we do not perform them on volunteers. Under federal and state laws, we as a private entity are very restricted as to what information can be provided to us by our state custodian of records (in Arizona, the Arizona Department of Public Safety). We have no legal right to view the rap sheet of the volunteer or to be informed of certain criminal offenses-specifically sex offenses. Release of sex offender information is permitted only through the websites of the Arizona Department of Public Safety or the local sheriff's office. As for commercial background check companies, caveat emptor. I work for the courts and deal with criminal history information as part of my current assignment. The information that they have access to is not the same as the information that courts and law enforcement agencies have access to. Often, the information is incomplete or inaccurate. The problem is that the background checking companies are not effectively regulated or accountable for the harm that they cause by providing incomplete and inaccurate information to their clients and the harmed persons. Some states now seal certain classes of criminal convictions (mostly property misdemeanors). Those cases will not be disclosed publically and in at least one state, use of such a record to disqualify an applicant for consideration exposes the employer to both criminal and civil liability.

For those organizations that do perform criminal background checks on applicants, do be aware that the FBI is tightening the access to criminal history records and a number of new requirements have been established that each state is required to comply with. Organizations that do not/cannot meet the new requirements will not be blocked from obtaining criminal history information. Organizations that desire to maintain access may be required to meet a number of very stringent requirements-site security, publication and filing of procedures/policies, mandatory training (documented), etc.

This sort of behavior seems to occur fairly often. Back when I was a working reporter, every few months a fire company, youth sports group organization or service club would bring charges against someone who had made off with a few thousand dollars -- or more. Generally, the accused would own up to their misdeeds and the judge would sentence them to restitution and probation. Perhaps one of the most notorious was a woman who was an elementary school principal who was also treasurer of an ambulance association. She made off with $1.2 million over a period of 10 years. Apparently no one thought it odd that she drove a new car almost every year, took extensive trips to Europe on a regular basis and wore expensive clothing. She did do a year behind bars and is on probation, but how will she ever pay back that much money on her school pension?

The WK&S is a very nice, scenic tourist railroad with clean, well maintained equipment. I feel for the dedicated volunteers who work so hard to keep the line open and continually upgrade the operating equipment. They have, unfortunately, found out the hard way that no organization can put all its trust in one person to handle money. They lost $100,000 and a bit of faith in mankind but are not bankrupt unlike some victims of these thefts.

My local F.O.E. club has twice been sucked dry by embezzlement. The first time, the club president, who was also the bar manager stole nearly $300,000 over three year period by pocketing money meant to pay off the club home mortgage. Then bank foreclosed and our club was forced to sell almost all the property around the building to raise capital and stop the foreclosure. Now we have no room to expand.

Recently, one really sly senior citizen ripped off about $250 to $400 a month by shorting a quarter dollar "lucky loser" raffle. He volunteered to count all the entries and money each month. Nobody double checked his counts and the drawing's average payout was $45 per month. He finally was caught when a serious illness caused him to be hospitalized. The club trustees began doing the count and instantly the drawing was worth $300 to $500 per month!

WK&S now knows why so many organizations use three signature checks and run every purchase through a board or trustee meeting.

I've been involved with two outside audits of excursion railroads. I'll name neither

RR#1 was getting ripped off by volunteers soliciting donations for equipment and site restoration WALKING THROUGH THE CARS taking donations from the passengers. It literally was robbing the train twice a day on weekends. Finally people started to get suspicious that none of the 'projects' seemed to be making any progress at all.... The two individuals ended up in prison when a CHECK was written and tracked.

RR#2 was a volunteer nonprofit; had had rumors that the ticket agent was skimming. Was hired by RR to show up at last minute and want a ticket, not have cash or credit card, want to pay by personal check. Agent had me make check payable to him personally, which I did, and that was the later evidence to convict him.

The worst was what happened to our own company; during ownership transition former bookkeeper attempted to clean out the accounts post-audit and before new ownership, actually managed to succeed in getting well into six figures by falsifying payment records, forging signatures, and mysteriously 'loosing' pages of bank statements with check copies and even falsifying those with Photoshop. After the third month, another full audit was called, forged signatures discovered, and she was prosecuted, arrested, plead guilty and served prison time. And that was with controls, it just took 90 days to PROVE it was actually going on, meanwhile, she took all her friends on an all-expense-paid vacation for about 20 people on an epic spending spree. Still getting restitution, in another 100 years or so we should be about square.

So, it can and does happen, and if you're a small organization you'd be amazed how quick it can happen even with controls. Bonding and/or insurance is highly recommended if you can possibly afford it.

Not all banks require themselves to check for signatures or extra signatures on checks.
In the Philadelphia, Pa. area, Wells, Fargo & Co. and Bank of America say just that in their account applications. You are expected to monitor your accounts and try to complain after the fact. Some banks try to avoid liability for honoring "raised" or altered checks. Core States was one, I don't know if Wells, Fargo & Co., which took them over, continues the practice.

Something similar happened at a church my family used to attend. Someone thought that there were some irregularities with the collections, and set up an audit committee. With the audit committee in place, the collection numbers rose dramatically. The clergyman involved was replaced shortly after...

Yeah, don't sign blank checks. Yes I know it's inconvenient. The people signing the blank checks have to know they're blank, and IMO they need to jointly hold liability for funds taken that way. After all, signing a blank check must have some sort of consequence.

It's actually worse than that these days because many people /companies deposit the checks they receive electronically ....

work around is to keep a Xerox copy of each check.

Bob H

A bit off topic, but if you think that's bad, see what's going on with legal records. Here in Arizona, all courts are being transitioned to electronic filing of legal documents with the courts. The first two counties that are being brought online are Maricopa and Pima Counties. I work in Pima County and am the primary electronic filing clerk. The documents that are submitted to us are scanned or entered into the electronic filing system at the attorney's office and sent as an attachment through the system. The document is viewable through the computers on the court's system or any computer used by the attorneys in the case. The documents may be signed electronically or have a real signature if the document was scanned. My electronic signature would be: Alan Walker/s/.

Better yet, new cases that are filed electronically have no physical file in the courthouse. All that happens is that an empty file with a notice on the jacket is made and put on the shelf. Files that are present must be considered to be incomplete if that type of case is subject to electronic filing (currently only Civil cases).

"Not all banks require themselves to check for signatures or extra signatures on checks.
In the Philadelphia, Pa. area, Wells, Fargo & Co. and Bank of America say just that in their account applications. You are expected to monitor your accounts and try to complain after the fact. Some banks try to avoid liability for honoring "raised" or altered checks. Core States was one, I don't know if Wells, Fargo & Co., which took them over, continues the practice."

The dual signature control isn't designed to initiate some sort of bank review, and unless presented to a teller, there's likely to be almost no human examination.

First of all, even in the later days of "proofers" banks were not examining checks all that closely. I remember my brother telling me that affixing the signature of "Mickey Mouse" would be unlikely to cause the check rejected. Given the illegibility and stylistic flourishes on signatures, there's almost no point in looking at the signature, other than to see it's there. There's more attention to endorsements as I understand it.

In today's world, the check is presented, the MICR code for the account number and "ABA routing number" is machine read, and the amount is put in.

The dual signature control allows a second set of eyes in the organization to see the check as written. It works as a "preventative control" only so long as the two signers are not colluding, and both signers notice if there's a skip in the check numbers.

As a detective control, it works if bank statements are reviewed/reconciled by somebody other than those with signatory authority and somebody isn't exceptionally good at forging other's signatures (or doesn't have access to a signature stamp)

This is where the failure occurs, because you need a lot of people who are willing and able to be involved in this to segregate inconsistent duties, and most organizations are happy to have one person that's willing and competent.

The Treasurer's job consumes a lot of time. Deposits to be made, bills to be paid, bank statements, preparing reports and filings, all consume time. It's hard enough to get one person that can and will do it-and that's why you hear so many of these stories.

By the way, given that most modern imaging machines are internet capable and store images in common formats, I would recommend against making images. I would order the carbonless copy checks.

Another area that needs careful supervision is the gift shop.

You have the usual tapping the till, and overbuying.

One Gift Shop Manager I heard of, used the name and credit of the organization to finance his on the side Model Train Flea Market Business.

Since all the invoices came to him, he paid the ones for stuff he bought for his side business, and submitted the ones for the Gift Shop.

Worked until he went on vacation and some back-orders showed up.

-Hudson