Fraud & Forensics
One Victim Details a Real Fraud
The Daily Record, March 9, 2009 by Gina Bliss
Owners of small businesses usually consider fraud as something that could happen — to someone else. Recently, I interviewed a small business owner who is a victim of fraud.
Q Did you ever think your company would be victimized by fraud?
A Absolutely not. We operate in a family atmosphere. Our employee turnover is low because people enjoy working here. We’re generous and our employees appreciate that. It never occurred to me that an employee who is like family to us would steal from the company.
Q How was the fraud discovered?
A Accidentally. I was questioning my bookkeeper about another employee’s overtime. I asked her for a copy of the payroll report. Our payroll is online, so she downloaded the report, exported it to Excel, then modified it to cover her own fraudulent payroll amount. But her demeanor and actions raised my suspicions. I called the payroll company directly for a copy of the report and compared it with the one the bookkeeper had given me. Then I knew.
Q What did you do once you had discovered the fraud?
A I called my accountant and then I called my local police department. I wanted my accountant to confirm that I was right. I wanted to be wrong. But I was right, and my accountant helped me investigate the extent of the fraud. The local police advised me on how to confront my bookkeeper.
Q When did the fraud begin, and how long before it was discovered?
A The fraud began the day the bookkeeper started. We found out later that she was already paying restitution to a former employer for embezzling when she started working for us. The bookkeeper was with our company for two years before I realized what was going on.
Q Why did it take so long to discover the fraud?
A I trusted her. She was a full charge bookkeeper and I didn’t check her work. She took care of everything for me on the financial side so I didn’t have to worry. She also purposely created chaos in the accounting records, was uncooperative with my accountant and withheld payments to my accountants so that they were not coming out to my business as often as usual. It was also a time of great stress in my life. The company was doing a big, complex project. I had some health problems and a death in my family.
Q How did your bookkeeper steal from you?
A She increased her paycheck by giving herself raises, paying herself fictitious overtime, giving herself bonuses and reimbursing herself for mileage and other business expenses that she never actually incurred. She also set up a fictitious retirement fund for herself and had the company contribute to it. The bookkeeper also used company credit cards for personal purposes and set up a bank card so that she could make ATM withdrawals.
Q How did your bookkeeper cover up all that fraud?
A As soon as she started with the company, she implemented an efficiency measure for payroll. In order to save time it was all Web-based and the payroll company stuffed the envelopes and mailed our paychecks directly. I never saw a report and didn’t need to sign checks anymore. She changed some transactions in QuickBooks (our accounting software) so that you couldn’t tell who she had really paid.
Q Did you prosecute?
A Yes, I did. At first I didn’t want to because I thought it would be bad publicity. Then I got really angry. The fraud felt like a personal betrayal. How could she have done all those things to my company? During the entire fraud she was pleasant and seemed concerned about the welfare of the company. The amount she took definitely was a material amount to us, and I realized that if I didn’t prosecute, she would just do it again to someone else.
Q What are you doing differently now that you wish you had been doing before the theft?
A All mail comes to me to be opened. Payroll is supervised by two people. I have a closer relationship with my bankers and accountants so there is a team approach to my business. I have implemented a lot more oversight. Last, but not least, I have a background check done on all prospective employees.
Q Do you have any words of wisdom for other small business owners?
A Yes, don’t trust anyone completely.
Gina Bliss, CPA, CFE
Gina is a senior manager at EFP Rotenberg who specializes in internal audit, fraud audit, and forensic accounting. Article reprinted courtesy of The Daily Record.