Regular subscribers to the Fraud Newsletter will have read adnauseum
how the trust factor in a small business can be abused by the very same
people who bask in the cozy atmosphere of a close knit group of
employees where everyone gets along so well and nobody questions the
morality, ethics and efficiency of those around them. Here is another
example of how abuse of trust has brought grief to a small Canadian
business with strong ties to the community.
In
a town some 27 miles (45kms) east of the Pacific Northwest city of
Vancouver is a once thriving building supply store that was founded on
trust. Started towards the end of the second World War in a community
recovering from the Great Depression, this business offered a service
built around what was at that time the major industry of wood and
lumber. In a Province with a wealth of lumber supplies and booming
construction, the lumber yard filled a strong need. All was well for
many years: the business changed hands, growing in size and thriving. In
time the business was handed down from father to son and at the turn of
this century a bookkeeper/accountant was hired on the basis of a
recommendation from the retiring owner. We will call this new employee
Alfred to protect his real name. Alfred, a big guy in his mid 50s, soon
welcomed the friendly atmosphere of his new employer and, unknown to his
co-workers and more importantly the owner, he saw an opportunity to
enjoy his expensive hobby of collecting old cars but at the expense of
the building supply store! You see the problem here is that Alfred had
total access to the business bank accounts but with no oversight. The
business also employed a lady whose job was to look after the payroll
but all other financial controls were vested in Alfred.He worked there
for almost ten years and towards the end of his employment he only came
to work on odd days of the week and seemed to have a very casual
attitude towards his duties.
An
example of the sheer absurdity of what was going on at this business
was the annual practice of ordering a turkey at Christmas time for each
of the employees. A nice gesture from a good-spirited employer. But the
quantities ordered from the supplier far exceeded the actual number of
employees because Alfred made sure his family and friends were also
looked after – he ordered ten extra birds and since he was in charge of
looking after the books it was no problem to fix the books to cover the
added cost.
Alfred’s scheme to pay for his expensive hobby was easy: he would cut a cheque drawn on the business account made out to Visa
but instead of using the bank where the business accounts were held he
likely chose his own bank where he had an existing relationship and was
known to staff. Once there he instructed the Customer Service
Representative to split the payment into two sums, one for the
legitimate business credit card debt and the other to pay off his
personal credit card balance. This became a regular practice as once he
had succeeded and was unchallenged he had clearly found a safe way to
perpetuate his fraud.
But
the walls came tumbling down when the current owner hired a new manager
and like all good new managers the first thing to do is look at the
books. The new manager’s suspicions were already elevated because the
turkey supplier called him and queried the sudden drop in orders and
wondered how the business could have lost ten people off its payroll so
quickly! At first Alfred would not allow the new manager to inspect the
books – a major red flag – but eventually relented and the embezzlement
of thousands of dollars was uncovered. Questions were asked. Many
questions! The manager asked the owner, the owner called his father and
all were nonplussed by the news that their bookkeeper had abused their
trust in him. Alfred was now running scared – he sold some of his prize
collectible cars and remortgaged his home to free up money to repay what
he had stolen.
As
a side note, I have a personal interest in this story. You see my step
son-in-law worked for this business as a forklift operator. During
Alfred’s shenanigans the business developed a not surprising cash flow
problem and they had to cut back on wages and their diligent forklift
operator had to take a drop in his hourly wage rate and later he was
laid off as the cash crunch peaked. (He found new employment as a
forklift operator with better pay so the story has a silver lining!)
This case raises several issues:
- Alfred soon found a new job with a well-known automobile parts retailer and one wonders what background checks were made by his new employer – no right-minded employer would hire someone freshly caught stealing from his last place of employment
- It is not unusual for a business to pay for personal credit card expenses even if they were not legitimately incurred as an employee of the business. Alfred’s bank would be aware of this and it is not surprising that no questions were asked with respect to Alfred’s personal credit card expenses being paid out of business funds despite the large sums involved
- An employee protecting his fraudulent bookkeeping records from inspection is such a huge red flag it cannot be ignored and must be acted upon
- Eventually this fraud would have been discovered through a diligent examination of the books but the casual enquiry from the turkey supplier to the new manager was the first major hint that something was awry but if someone had simply questioned the Christmas expenditures (this had been going on for years) earlier the damage would have been a lot less to the company
- Blinded by trust and the family atmosphere at this business nobody questioned Alfred’s ability to maintain his expensive hobby on the meagre salary he earned
Jeff Burton, Detective
Author of The Burton Report
Colorado Woman Sentenced for Embezzling $1 Million from PERA
 |
Beth Ann Roybal, 53, pleaded guilty in August to felony theft.
A woman accused of stealing $1 million
from the Colorado Public Employees' Retirement Association was sentenced
Friday to 10 years in prison. Denver Deputy District Attorney Kandace Gerdes argued for the maximum sentence of 12 years. |
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