Another Millionaire “Thief” – Don’t let this happen to you!

I read this morning in the Buffalo News that another bookkeeper became a millionaire – for a while at least – by stealing from her company.  Here is a link to the article:

In the article, several issues are raised:

“Davis became the sixth person prosecuted by the Erie County District Attorney’s Office in the past 25 years to be convicted of a theft of more than $1 million. During the hearing, prosecutors Candace K. Vogel and Gary M. Ertel said she wrote checks to herself and to cash between October 2010 and September 2012.”

Other incidents reported in the article included:

  • “a medical supplies salesman from Orchard Park, in 2011 stole almost $1.8 million worth of implants and other surgical devices destined for Buffalo’s Mercy Hospital and cheated his employer.”
  • “in 2011 was sentenced to 2-1/3 to 7 years in prison for swindling 53 law clients out of $3.1 million.”
  • “chief financial officer of Servotronics Inc., in 2006 was sentenced to 4½ to 13½ years in prison for corporate thefts amounting to almost $4 million.”
  • “He was sentenced to four to 12 years in prison for stealing more than $1.5 million from a construction company.”
  • “a comptroller, pleaded guilty in December 1991 to embezzling almost $1.5 million from the Catholic Diocese of Buffalo. “

These are the larger cases where the thief was caught and made the news.  Smaller thefts are even more prevalent.  Most go undetected.  In fact, the AICPA (American Institute of Certified Public Accountants) released a recent study that has some astounding statistics. According to their survey of members, up to 82% of small to mid market businesses have or will experience employee theft. Of the incidences of theft uncovered, the average theft amount equals $125,000!! And believe it or not, most of these thieves are not prosecuted.

Also stated in the Buffalo News article:  “We tell companies all the time, you should have a regular, independent audit done by an outside auditing agency,” Sedita said.”  Most small to mid sized companies are not audited by their CPA firm.  Some are reviewed and most smaller companies only have their tax returns prepared and possibly have a statement “Compiled” by their accountant which does not require a review or audit of the books and procedures.  Note that several of these companies were audited (the highest level of assurance) by their CPA firm.  A CPA firm is not expected to uncover fraud in the normal course of auditing a business to prepare their financial statements, unless a special engagement to uncover fraud is requested.

Employee theft can come in many forms. Look at the following ways employees can steal from you.

  • Cash – Does the employee who collects the cash also make the deposit and reconcile the bank statements?
  • Payables – Does the employee who makes the vendor payments reconcile the bank statement? Does this employee have access to online accounts or a signature stamp?
  • Time – Do your employees steal time by running personnel errands or spending excess time on the phone as you are paying them for doing the company work?
  • Company credit cards – Do your employees have company credit cards? Are the expenses charged to these cards reviewed by someone other than that employee?
  • Computer access – You would be amazed at how many employees run a small business on your computer and on your company time.

How can you stop this? First of all, have a policy that strictly forbids the above activities (and other similar activities).  Second, look at your business functions and determine where you might be vulnerable.  Third, make sure there is a separation of duties between employees who handle areas where theft could occur.  Forth, consider monitoring where employees spend their computer time.

There are many ways an employee can steal from their employer.  There are also many ways an employer can prevent this activity.  Being aware is the first step.  Having an experienced professional working in your company on a regular basis, and having access to all aspects of your business, would not only be more likely to discover theft, but would also be a deterrence of such activity.

photo credit: Crackers via photopin (license)


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