A Plante Moran embezzlement expert says that as the economy improves and hiring increases, there may be more discoveries of cases like that in South Haven, where the former bookkeeper of the Village Market Food Centers chain was sentenced to 87 months in prison for stealing about $6.5 million from the company.
With employers’ confidence improving regarding the economy, many companies and organizations are deciding they can start hiring to fill in the gaps in staffing caused by the recession, according to Michelle McHale. In some cases, she said, hiring allows more than one person to be involved with the day-to-day financial processes.
Some businesses and nonprofits got down to just one person being in charge of finances, but as new faces are again added to that function and duties are shared, sometimes “oddities start to bubble to the surface,” said McHale. A CPA, she has worked in financial investigations for 17 years and is a Plante Moran principal and head of Forensic Investigation Services for the entire organization.
By “oddities,” she means things like the discovery at Dixon, Ill., city hall in 2011. Dixon has the dubious distinction of being the largest municipal embezzlement case so far in the United States: $54 million worth of theft from city coffers.
Rita Crundwell began working for the city in 1970 while still in high school. In 1983, she became treasurer and comptroller. In 1990, she opened a secret bank account in the city’s name with only her name attached to it, and began funneling city money into it for the next 21 years. Constant budget shortfalls caused the city to cut services over and over again, but no one — not even the annual auditors — were able to detect what was going on. Crundwell said state revenue due to the city always showed up very late, if at all, which was readily believable. And she was considered very trustworthy — everybody knew her and liked her and she’d been there forever.
McHale said Crundwell’s undoing was finally taking a vacation in 2011. A city clerk opened the mail in her absence and learned about the bank account nobody else in city hall had ever heard of: the Reserve Sewer Capital Development Account.
“If she never took that vacation, it just may not have been discovered,” said McHale.
Trust is not an internal control, stresses McHale: All employees’ performance on the job needs to be verified continuously.
“When someone has complete control and is trusted in their position because people have known them a lifetime, it’s easy to say, ‘Well, Betty would never do that,’” said McHale.
“Fraudsters are the hardest working individuals in the company,” she said. “They have to work hard to keep their fraud up.”
“This is pretty much all I do, and time and time again, I see similar patterns — especially in West Michigan where there is a lot of trust” in well-established communities where most people know each other.
“That’s outstanding, but again, you have to have those internal controls. Everyone needs to be accountable,” she said.
Vacations should be mandatory, she said, because many frauds are discovered when the fraudster is away. Requiring mandatory vacations also provides an opportunity for cross-training, a benefit to any organization.
McHale is personally familiar with a case where outlandishly lavish tipping by an executive at a nonprofit organization was a clue to embezzlement. It is easy to be an embezzler with a flair for big tipping “because it’s not your money,” she said.
Another case in West Michigan, one of the largest she knows of — not counting the Michael Vorce case, of course — was a trusted professional who was both a CPA and an attorney, who stole a couple million dollars from his clients.
McHale said an employee in a key position of financial responsibility may be an exemplary employee for decades, but sometimes, after many years, things happen that can lead to radical changes in behavior.
“Gambling would be one of them,” added McHale. “We do see a lot of cases whereby gambling is the motivating factor for the fraud.”
Christopher Pratt, the Village Market employee caught embezzling from the grocery chain, reportedly had a gambling problem and a weakness for expensive cars. With the explosion of casino gambling across the nation, casino fans don’t have to make the long trek to Las Vegas or Atlantic City. That obviously makes it much easier for someone with a fondness for casino gambling to turn a habit into a serious problem.
“Many times you will see these (embezzlers) unhappy in other aspects of their lives … and they’re looking for something else to make them happy,” she said. Lots of money can do it, for a lot of people.
Criminal prosecution of discovered embezzlers on the employee roster is often a major issue that employers have to deal with, according to McHale. Should the employer call the police for a small case of theft?
“It depends. I don’t always think criminal charges should be pressed,” she said.
If the loss is covered by insurance and the company plans to file a claim, the insurance policy may require that it is reported to the police. If it is a nominal amount of money or value, the employer may want to think twice about reporting that to the police.
However, she said the company management must “set the tone” at the top, making clear that employee theft won’t be tolerated, in any case — which is what immediate termination of the thief will demonstrate. The message will be clear to all other employees, “and no one wants to lose their job,” she added.