Running a business? Don’t be so trusting
If you run a business or nonprofit, do you look at your bank account each month, study the checks being written?
Your bookkeeper does a good job and things are going pretty well?
Don’t be so trusting.
Through my career in news, I’ve seen more stories about embezzlement than I can count, ranging from a parent in Iowa who skimmed $3,000 from his son’s Little League to a skating club treasurer in metro Detroit who took $150,000 to a finance director in Kentucky who stole nearly $800,000 over 12 years.
The thing that stands out about these cases is that the thieves are so ordinary. They usually are middle-class people with no criminal record, kids in school, often active in church and clubs. Actually, that latter civic activity often creates the opportunity for their theft.
So when I heard our district attorney, Sherry Caloia, tell the Glenwood Springs Rotary Club that embezzlement was a focus for her office, I wanted to learn more.
“I have an abhorrence to theft, especially from your employer,” Caloia told me in a conversation later. “You have to trust these people, and when they take advantage of that trust,” they must be held accountable.
Since taking office in January 2013, Caloia has filed charges in 18 such cases — roughly one a month.
Before becoming the chief prosecutor for Colorado’s 9th Judicial District, which encompasses Garfield, Pitkin and Rio Blanco counties, Caloia was a victim of embezzlement herself. It was a particularly nasty case involving former Marble town clerk Karen Mulhall, who also worked for Caloia’s firm and stole money from both. Mulhall was found dead, thought to have killed herself.
Even in less sensational cases — and those that are never reported — the overall impact of embezzlement is huge.
The FBI Financial Crimes Report to the Public estimates that such incidents account for approximately 30 to 50 percent of all business failures. And the National White Collar Crime Center estimates that employee theft and embezzlement cost U.S. businesses and organizations $400 billion a year.
It can happen to just about anybody — it’s happened to the Garfield County clerk’s office, to RFTA, to Movieland in El Jebel. Small businesses and nonprofits are particularly vulnerable.
A trusted worker, maybe even an acquaintance, is keeping the books. No certification is required.
The business owner is working nonstop to build customers, manage any employees and do the work that inspired the owner to start the operation.
And the bookkeeper is skimming cash.
“I think the emotional toll is almost worse than the embezzling itself,” partly because the thief often is a trusted employee who even has become a friend, said Marianne Virgili, CEO of the Glenwood Springs Chamber Resort Association, who commended Caloia’s approach to the crime.
Embarrassment can lead some business owners to skip prosecution and simply fire the employee, figuring that a court case would be time-consuming, the publicity might be damaging to the organization and all of that hassle might not result in much money being recovered.
One problem with that approach is that the bookkeeper can move on to another organization and do it again.
And a great deal of this class of stealing goes unpunished.
The Association of Certified Fraud Examiners’ 2014 Report to the Nations on Occupational Fraud and Abuse found that only 61 percent of cases of embezzlement studied were referred to police.
“Embarrassment is natural,” Caloia told me. “But people don’t think about the fact that someone else could be a victim. It’s their duty to report it and go forward.”
Said Virgili, “It’s easier for people to report if they know there will be justice. If it’s out there that the DA is coming down hard, it’s a deterrent.”
This DA will.
Caloia said most embezzlers are women in part because women are readily put in positions of trust. Two-thirds of the people she’s charged with embezzlement are women, with the amounts stolen ranging from a few thousand dollars to more than $200,000.
They all have an excuse, the prosecutor said. “They’ll say, ‘I was an abused woman. I didn’t want to rely on my abuser for money.
“But the bottom line is greed,” she said. “They are living outside their means, whether it’s little living outside their means or big living outside their means.”
Caloia said the No. 1 preventive step is to look at the bank account every month — and never to let anyone have exclusive access to the account.
Virgili suggests an audit by an outside CPA — potentially expensive, “but in the long run, it’s self-insurance,” she said.
If you run a business, you work too hard to lose it to someone else’s greed. If you run a nonprofit, you owe it to your donors and clients to keep this from happening.
And if it does happen, you owe it to other organizations to report it. The DA is on your side here.
Randy Essex is editor of the Post Independent.
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