|
If you have trouble viewing
this message, please click here.
|
|
|
|
February 2026
|
|
Recent Case:
Embezzlement Scheme: Lessons Learned
|
|
"I Can't Believe It
Happened to Me — I Should Have Known"
The shock of realization when a victim recognizes that a trusted
employee — and even a friend — has stolen from them ranges from sad to
tragic. It is a very personal feeling of betrayal and violation. It
strikes fear in some, grief in others, and anger in most. In my
experience, it is almost always accompanied by a sense that "I
should have known this was going on." The evidence of theft sheds
a very bright light on the rearview mirror. Patterns and circumstances
take on a clarity that contemporaneous experience either hid or
obscured. Sometimes the clarity was there but for a variety of reasons
it was ignored.
The following is just such a case —
the victim immediately recognized the theft and simultaneously felt
incredibly stupid for "allowing it to happen." The lesson
cost him several hundred thousands of dollars in uninsured losses. The
recognition happened when his bookkeeper unexpectedly missed a few days
of work and he ventured into the mail and opened a bank statement. The
simple act of thumbing through cancelled checks from one month's bank
statement prompted a phone call to his attorney who directed him to a
forensic accountant.
What developed was evidence of a
simple and devastatingly effective embezzlement scheme. The bookkeeper
had set up vendors that were very similar to existing real vendors. For
example, if the real vendor was ABC Service Company then a fake vendor
was established called ABC Service Co. The bookkeeper went to the bank
and set up bank accounts for the fake vendors. That was the hard part.
The rest was easy. The business owner signed hundreds of checks to the
fake vendors thinking the checks went to legitimate business activity.
Since that worked so well, the
bookkeeper began forging checks made payable to pay the vendors,
personal expenses, and provide cash gifts to family and friends. And,
since all that worked without any notice by the business owner, the
bookkeeper got an unauthorized increase in salary. It was bold. It was
also easily discovered and should have been easily prevented.
The bookkeeper was pretty quickly
arrested and has spent some serious time in jail. The following are Fraud Prevention 101
steps that were ignored and could have prevented the fraud.
- Know
your employee.
In this particular case the business owner recounted that he knew
the prior employer of the bookkeeper really well. He was aware
that the bookkeeper had left the prior employer on less than
positive terms but figured it was none of his business and hired
the bookkeeper because of knowledge of the industry. A phone call
to the prior employer/friend after the embezzlement was discovered
revealed that the bookkeeper was probably stealing from the
current employer to pay off a judgment obtained by the prior employer
to recover embezzled funds.
- Embezzlers
tend to be repeat offenders. This is an obvious follow-up to the prior
point. A simple background check is not expensive, easy to do, and
in this case would have prevented a really bad hiring decision. It
would have confirmed the ill-at-ease feeling of the employer at
the time of hiring.
- Open
your own mail.
Let the bookkeeper do the bookkeeping. You cannot abdicate other
important (and seemingly unimportant) functions because the clerk
is always around and does their job well. Vendor communications,
bank statements, and bills from vendors and suppliers are
important sources of information.
- Separate
functions and duties.
Many small business owners are so busy that they tend to overlook
common sense when assigning work. In this case a bookkeeper was
eventually given the responsibility for answering the phones,
opening all the mail, writing checks, making deposits, preparing
invoices, reconciling the bank statements, and preparing the
financial reporting provided to the business owner and his outside
tax preparer. As noted above, simply opening the mail would have
prevented some of the problems — or would have caught it a lot
earlier.
- Don't
accept bad answers to good questions. When the forensic accountant arrived on-scene,
the business owner requested a report showing payments to all
vendors. The request was preceded with a long list of
qualifications recognizing that it was difficult to put such a
report together, would take a long time, and would not be
precisely correct. The accountant produced the report in about 90
seconds. The business owner was shocked — and the point was made.
His bookkeeper, for a long time, had prevented him from seeing the
very report that exposed the whole scheme. He had been given every
reason in the book why the report couldn't be produced.
- Force
vacations.
Nobody else had access to the bookkeepers work for over two years.
Any other eyes on the accounting records would have exposed
everything.
- Acknowledge
your instinct.
If the lifestyle of the employee exceeds what you know about their
legitimate compensation there is good reason to look harder. If
the bookkeeper can't produce simple reports from "the
books" they are keeping there is a problem. If you feel like
you are working for the bookkeeper rather than them working for
you, something is wrong. If it feels like the business is doing
better than ever but there isn't any cash there is good reason to
find a reasonable explanation.
All of the bullets were separate
points of recognition by the business owner in this case — "I knew
something wasn't right. I should have known this was happening."
That is never good after-the-fact.
If you have any questions about Forensic
Accounting Services for Embezzlement and Fraud, please contact
us.
|
|
Service Profile:
Forensic Accounting Services for Commercial Litigation
|
|
Arxis Financial's "Forensic
Accounting Services for Commercial Litigation"
include reconstruction of accounting records, analysis of business
transactions, document review and tracing, and expert witness
testimony. We apply detailed investigation and analysis that is
necessary to uncover essential facts and provide meaningful insights.
Arxis Financial
professionals provide valued assistance in a wide array of commercial
litigation matters, including: bad faith, breach of contract, business
interruption, fraud, partnership and shareholder disputes, trade secret
and unfair competition, wrongful termination, commercial collection,
debtor/creditor litigation, mergers and acquisitions,
corporation/partnership dissolution, lender liability, product
liability, trade libel, and Uniform Commercial Code disputes.
Our experts have extensive experience
in presenting and defending our findings in litigation proceedings,
including depositions and trial at local, state and federal court
levels, as well as mediation and arbitration. We assist attorneys in
interpreting the data, and help counsel to understand and analyze
events or issues. This level of support can be a key asset in
determining a legal strategy as well as reaching a reasonable and
efficient conclusion.
If you have any questions about Forensic Accounting Services for
Commercial Litigation, please feel free to contact
us.
|
|
Speeches:
Upcoming Speaking Engagements for Chris Hamilton
|
|
Chris Hamilton's recent and upcoming presentations include:
- "CVA
Certification Training," Salt Lake City, Utah (February 2026)
If you are interested in asking Mr.
Hamilton to speak at your organization's upcoming meeting, please feel
free to contact him.
|
|
|
|
|
|
