November 2011 Newsletter
Does one of your employees have their hands in “your” cookie jar?
Kimberly “Dusty” Leal takes a look at embezzlement, a crime becoming
more popular at an alarming rate.
With the failing economy and unemployment at record numbers, it’s no surprise that
people are looking to supplement their incomes in less than favorable ways: from
their employers. The 2010 Marquet Report of Embezzlement analyzed cases where employees
misappropriated funds in excess of $100,000 or more. A startling statistic from
this report is that embezzlement cases in this range are up over 17% from previous
I have worked on many automotive embezzlement cases including one more recently
that involved the theft of several million dollars from a dealership. Were there
internal controls in place to monitor the cash? For many of the stores involved,
initially the answer to that question was yes, but then there was a breakdown in
the system of checks and balances. This is usually a direct result of either blind
trust, complacency, or both. You may think your business is safe, but unfortunately,
these are two common themes I have seen among some of the cases on which I have
worked. Let’s take a look at them in a little more detail.
Blind Trust – Internal controls to monitor cash are an accounting best practice,
yet I have come across many situations where the person embezzling was so trusted
that people ignored any “red flags” they might have seen. Internal controls were
lessened due to the “trust” felt for this particular person, therefore opening the
door for more cash to be taken for longer periods of time.
Here is an example. I worked on a case where a dealer had a “gut” feeling something
was wrong for a couple of years but couldn’t put his finger on it. He had a CPA
come in to investigate. The CPA sat down with the controller and spent a couple
hours in discussion about the dealer's concerns. The controller downplayed the situation,
and then the CPA reviewed some documentation. He determined from his visit that
everything was fine. It wasn’t! The controller, a twenty-year employee of the company,
was indeed embezzling money — to the tune of several million dollars. A quiet, soft-spoken,
almost fragile man, everyone assumed that he was incapable of such behavior, when
in fact, he was very capable.
The Marquet Report of Embezzlement lists some noteworthy characteristics of the
average perpetrator as follows:
• Women are more likely to be major embezzlers than men (62.7% vs. 36.3%).
• On average, men embezzle significantly more money than women, ($1,811,380 vs.
• By a considerable margin, major embezzlers are most likely to be individuals who
hold bookkeeping or finance positions within organizations (63.4% of all cases).
• On average, major embezzlement schemes last about 4½ years.
• The vast majority of major embezzlements are caused by sole perpetrators (85.6%).
• About 5 percent of major embezzlers have prior criminal histories.
Several cases I worked on involved the perpetrator forming such a strong personal
relationship with the dealer that they even took joint vacations.
Establishing internal controls protects a dealership from the threat of loss. Maintaining
and monitoring these controls is just good business. If enforcement of these controls
makes somebody nervous, it might warrant a closer look at them. After all, it’s
just business. If an employee takes it personally, there could be something going
on below the surface.
Complacency – A good plan of action is only as effective as its implementation.
As mentioned above, the failure to follow through with best accounting practices
exposes a dealership to many liabilities such as theft. A third party – your CPA
or a consultant who specializes in this field, for example – can help you determine
if you have good internal controls in place and just as importantly, if they are
The cost of complacency can be higher than the cost of monitoring it. Many dealerships
rule out audits by their CPAs because of the cost and time involved. While I agree
that this type of audit is pricey, it is an avenue that can and should be followed
when you have a concern about your store.
Here is an example. A while back, I had a client contact me to discuss a concern
he was having about his controller. He asked me point-blank, “Do you think she is
capable of stealing money?” My first reaction was to say no, but I knew better.
I had grown fond of this person while working on some projects for my client, but
this was a business question. I answered with, “Give me a week in your store, and
I’ll have your answer.” My client thought about it over a few days and called back
stating that he didn’t want to spend the money. I wished him well and didn’t hear
anything about the situation until a year later. At that time, I received a call
that the controller had been fired, and hundreds of thousands of dollars were missing.
The investment in my time would have cost him significantly less than what his employee
stole – and ultimately, lost – from the business.
While fraud is the exception, not the rule, it’s always healthy for a business to
review their “best practices” annually and make sure that what’s in place is effective
and easily monitored. Your CPA is a good resource as well as a consultant who specializes
in this field. Remember, if you see a “red flag,” take action and look closer; not
only could you save your business thousands, if not millions, of dollars in embezzled
losses, you will also prevent other employees from thinking that they, too, can
steal from the cookie jar.
Contact Kimberly: Info@autopeople.com