Missing Funds – Silent Departure

post dateMarch 17, 2016  •   post categoriesUncategorized  •   post comments number0 comment

On March 4th, I posted an article entitled, The Alarming Facts – Multiple Tasking. That post focused on two former managers entering a guilty plea to two totally unrelated financial embezzlement acts against each of their former employers.

Well, less than two weeks after that post, I am writing about another example allegedly showing just how severely an organization can be burned when an employer’s watchful eyes are closed:

March 2016: Authorities charged a publicly funded agency’s former chief financial officer (C.F.O.) with allegedly committing several counts of theft, including embezzlement of $200,000 from the agency. According to information released by the District Attorney’s Office and/or various media groups, the alleged perpetrator embezzled funds from September 2005 to February 2012. With full restitution made, this CFO was allowed to quietly resign in February 2012.

Investigative Issues: The misuse of funds and CFO’s resignation were first reported in June 2014 by a local website. Based upon this information, it appears that the DA’s office commenced examining evidence in August 2014, submitting their case to the grand jury in January 2015. Prosecutors alleged that the CFO, a nine year employee, stole $200,000 during the above period to pay for her personal expenses. It is alleged that the CFO used a company credit card to pay for $118,806 in personal expenses—including $19,470 in dinners at expensive restaurants, $18,734 on purchases at big box stores, $4,106 on skin care treatments at a New Jersey business and more than $1,500 to a furrier in New York. It is also alleged that she used her company credit card to pay personal credit card bills.

Additional Facts: (NOTE: If the alleged “facts” reported below are true, I question the agency’s handling of this matter, especially as it relates to its failure to immediately involve police.)

According to reports, “after the discovery, the agency took immediate action and turned to legal counsel, who advised [agency] to make the organization “financially whole as soon as possible.” In a later alleged statement, the agency’s attorney said, “law enforcement was not contacted because we believed it was more appropriate to handle this internally.”  He also was quoted as allegedly saying, “Our primary concern was full restitution, which in fact was made.”

My Response: Well folks, I am not an attorney, nor do I profess to be a criminal law expert. However, throughout my career I have always believed that no deals should be made between an alleged offender and the victim when it came to making a restitution agreement indicating that the matter would be handled “internally,” in lieu of it being turned over to police. In fact, in my award-winning book, Business Fraud: From Trust to Betrayal, page 200, I provide readers with a few words of caution: “Unqualified and inexperienced individuals who attempt to take on such investigations or make questionable restitution agreements with an alleged perpetrator can quickly subject themselves to serious civil and/or criminal actions.”

Bottom line, I have always viewed promises for not involving the authorities providing that full restitution is agreed upon—is close to being on the fringe of “extortion.” Therefore, there may be more to this issue than I am privy to. I doubt if any attorney would have taken even the slightest step towards crossing that line.

More Things:

1This alleged crime took place for over a period of six years, without prompt discovery by an auditor, or other designated individual. Why?

2. It appears that credit card charges were not monitored to identify abuse. Why not?

3. It is nearly impossible for any internal fraud or embezzlement to take place without some type of failure on management’s part. This can be failure to implement or enforce reasonable internal controls; failure to adequately separate critical job functions; failure to provide supervisory oversight; failure to give special attention to potential warning signals that suggest something may be seriously wrong. I would expect that by now, this agency’s internal controls have been analyzed in order to “button-up” any weaknesses.

In any number of routine job positions, multi-tasking in organizations creates little or no financial risk. However, the key words here are financial risk. Managers must understand that certain critical financial jobs in their organizations should not be multi-tasked. These jobs require second-party cognizance.

For those employers who provide company credit cards, ask yourselves:

a.. Are credit card controls adequate within our organization?

b. Are credit card purchases closely monitored in our company?

c. Does each card user have a spending cap limiting each transaction and monthly volume?

d. Are purchase receipts ALWAYS reconciled to monthly credit card statements?

e. Do those employees issued company credit cards sign a waiver assuming responsibility?


Bottom line: Many companies fail to recognize or accept the fact that whenever one employee is permitted to perform a series of critical job tasks without adequate internal control and oversight, that individual, if dishonest, has the power to manipulate matters and conceal deceit. Given the stress in business to cut costs these days, and the inadequate attention paid to consequences, is it any wonder that American businesses are unnecessarily losing well into the billions of dollars to internal thieves?