Watch Your Books to Prevent Embezzlement and Other Economic Crimes

by Paul Davis

Embezzlement can result in tens of thousands of dollars in lost profits when you don't watch your books closely enough.

Paul Davis
On Crime & Security

In my last column featured I interviewed G. Michael Green, the District Attorney of Delaware County, Pennsylvania. We covered economic crimes and the criminals who target small business people.

Green also talked about the business security seminar his office presented in May to alert small business people to the dangers of economic crime.

I also spoke to two of the presenters at the seminar; Lieutenant Joe Ryan, chief of the Delaware County DA’s Economic Crimes Unit, and Mike Dugan, the chief prosecutor for the unit.

“We put on the seminar for businesses in Delaware County at Neumann College,” Ryan told me. “We put together some people from our office, some people from the banking industry, corporate security companies and from forensic accounting companies. It was about a four-hour seminar.”

Assistant District Attorney Mike Dugan said that embezzlement was their main focus for the first of what will be a series of business security seminars.

“Lately we’ve seen a spike in embezzlement cases coming through this office,” Dugan explained. “The cases are probably spurned on by the economy.”

Dugan said their office has prosecuted some significant cases this year, including million dollar cases. Dugan said they take their time with these cases, dotting their Is and crossing their Ts when they put together a prosecution.

“By the time a case is put on paper and that person is arrested, we have down to a single penny what was stolen,” Dugan explained. “Just in the last six months, we‘ve made five or six arrests for embezzlements of over $100,000 and $200,000.”



One recent prosecution involved a Delaware County woman who was embezzling funds from her company for several years. The owners only discovered the theft as the woman, the company bookkeeper, confided in the office manager.

According to the affidavit, the woman told the office manager that she had “done something bad.” She admitted to embezzling from the company to pay her credit card bills.

The bookkeeper had a credit card account with the same credit card company as her employer. Even though the company’s credit card was paid automatically via a bill paying system, each month the bookkeeper would complete a company check to the credit card company and have one of the owners authorize the payment with their signature. She would then add her personal credit card account number on the bottom of the check so her account would be credited with the payment rather than the company.

She also admitted to stealing funds from the petty cash account. The office manager later discovered that the bookkeeper executed at least 27 petty cash checks and recorded them in various account ledgers in order to hide the large of amount of cash being stolen.

The office manager’s audit revealed that the bookkeeper issued 59 checks that paid for her personal credit card, totaling $22,612.48.

In another case, a Delaware county man stole funds from an athletic club’s snack bar. The man, who served as vice president of the board of directors and snack bar chairman, was responsible for the day-to-day operations of the snack bar. His duties included purchasing food, snacks, drinks and supplies and he was also responsible for collecting and depositing all money generated by the snack bar.

According to affidavit, the director of the athletic club noticed that the snack bar generated small profits. He began to work at the snack bar and noticed that the man removed money from the cash register and placed it in his pocket on a regular basis.

The director also took note that was no ledger or record kept of how much money was brought in. The director went over the books again and kept coming back to missing profits.

The director finally confronted the snack bar chairman, who admitted causing the short fall by taking $2,400 to make two of his mortgage payments. The man then resigned from the club, stating he was ashamed and embarrassed.

As a result of an investigation, it was discovered that between 2003 and 2008, the man stole $61,377.73 from the athletic club’s snack bar.

Ryan said there was also a problem with counterfeit checks. The DA’s office has a bad check prevention program and Ryan presented an overview of the program to the business people at their seminar.

“The biggest issue is good controls on the destruction of old checks,” Ryan said. “As far as accepting them, know who you’re dealing with. Make sure the check you’re receiving is the check you’re expecting.”

Ryan said that this year they’ve been successful in taking down a couple of counterfeiting rings involving credit cards and checks manufacturing. Ryan said that some of these players in these crimes are in their 30s, but if you look at their records back when they were 18 or 19, you’ll find narcotics and weapons violations. Ryan said that the criminals tell him that they are a little older now, have families and they realize it’s a little safer doing economic crimes than drug dealing - and it is more lucrative. There is less violence in white collar, economic crimes and the penalties are less severe.

Ryan also noted that the DA’s office is seeing cases of small businesses receiving bills for small purchases they never made. The businesses end up paying them because they are small amounts, even if they are repetitive billing. A crook will send in basically dummy invoices and if it’s $15 or $20 a month, many businesses pay them.

Ryan said that the bogus bills are often paid, even though the bill is not properly approved. Ryan explained this is due to a lack of controls.

“A business person starts the business, gets it going and then they try to grow the business - leaving someone else to handle the finances,” Ryan explained. “They lose track of keeping an eye on finances because they are out trying to grow the business. Nobody is watching the hen house.”

About the author: 
Paul Davis is a writer who covers crime & security for newspapers, magazines and the Internet. He can be reached at pauldavisoncrime@aol.com

Paul Davis on Crime & Security

 
Free small business newsletter
 
Get great business ideas and advice like this sent to you in email twice a week.
 
Subscribe to the free Business Know-How newsletter. 
 
Enter your primary email address below

 

Follow Us and Share