This following story is true, and it happened to me. It has now been more than a year since this sad episode occurred, and I would like to say I have recovered. But if truth be told, this case has changed my life forever. Some wounds go very deep.
Sarah and I worked together for more than 35 years. We had lunch together hundreds of times. I watched her children and her grandchildren grow up. I helped save her house during a divorce. I knew all of her “family” stories. Her sister told her that I was her guardian angel. I watched over her. I thought I knew everything there was to know about Sarah’s life. I was wrong. Woefully wrong!
At first I noticed that cash was missing. I talked it over with my accountant, who advised me to ask Sarah about it in a non-threatening way. I handed Sarah a ledger and said, “I noticed that we received a $500 payment on this account, but I did not see the money recorded on the day sheet and I did not see it deposited in the bank. Can you figure this out for me?”
I was instructed to say those words, then leave. Don’t press. Don’t expand. Just say the words and walk away. I did exactly as I had been told.
Four days later I came to work early. Unexpectedly, Sarah was already in the office. When I walked in, she excitedly said, “Dr. Martin, I found the cash you were asking about! You know how we sometimes hide cash. Well, I misplaced the envelope. I put it behind this file on my desk.”
She handed me a sealed white envelope. I opened it and found the $500 cash…along with two checks made out to Dr. Martin.
“Damn!” I thought. She is stealing checks as well as cash. How is she stealing checks?
A BRILLIANT SCHEME
I won’t reveal the exact technique that Sarah used because I don’t want to give any potential thief a lesson on clever ways to steal other people’s money. The fraud expert at the bank and the detective from the police department both said it was a brilliant scheme. You can take my word for it; there are lots of ways to cash other people’s checks, and Sarah had come up with a doozy.
During the processing of this case, I learned the difference between “hard” evidence (forensic-level evidence) and “soft” evidence. The police and the district attorney’s office wanted forensic-level evidence for court. We documented hard evidence of $70,000 being embezzled over the last seven years, but that was just the tip of the iceberg.
Over the last 10 years Sarah took more than $100,000, and the 20-year total was much higher. She once bought two houses with a combined value of $730,000. She knew me well enough to convince me that these houses were for her daughter and son-in-law who were receiving help from his family.
WARNING SIGNS WENT UNHEEDED
Looking back I realize that I saw, but overlooked some huge “red flags” that I should have investigated. The brief talks I had with my accountant did not scratch the surface. One of the lessons to be learned from this case is that people who are successful at embezzlement know us better than we know ourselves.
I also learned that embezzlers do not think or act or look like our idea of common thieves. They look like “family” and we may come to think of them as family. Meanwhile, they are watching the cash flow and acquiring an intimate knowledge of the bookkeeping/accounting system. They look for weaknesses. They test the system. Then, slowly and meticulously, they put their scheme into practice, embellishing it over time.
PROTECTING YOUR BUSINESS
From this sad episode I have learned painful lessons on how to protect your practice from being victimized by an embezzler. You should never operate your professional business like a family business. There should be multiple people handling all funds and you should have multiple people double-checking each person’s actions—including your own. The minute you put one person in charge of collecting and banking funds, you are asking for trouble.
You also need to know that potential thieves thoroughly understand conventional bookkeeping techniques. Sarah had years and years to learn, hone, and perfect her craft. She developed it into an art form.
Many people ask me why my accountant did not detect it. Conventional accounting deals with many issues, but embezzlement is not one of them. Don’t expect your accountant to spot a thief. Accountants make sure books “balance.” Thieves also make sure books “balance.” Trust me, my accountant is plenty smart, but she completely missed it. In fact, when I first started spotting “losses” my accountant was absolutely sure Sarah was innocent.
More advice: Take action now to prevent embezzlement before it happens to you. Think about it, work on it today! Don’t wait for the “red flags” to appear. My poor management skills, my gullibility, my carelessness cost me over $150,000. Don’t make my mistake.
A COMMON CRIME
When I reported this case to the police, they told me I had a lot of company. They told me about many cases just in my neighborhood where employees had taken huge amounts of money, triple what I lost. The police even detected embezzlement in the La Mesa, California, police station.
When you start trusting people completely, when you stop conducting a continuous system of checks and balances, you get hurt. My greatest pain has nothing to do with the money I lost. My strongest emotional response is the sadness I feel at being betrayed by someone I treated like family.
Sarah pleaded guilty to felony theft. The court gave her five years of probation and ordered her to repay the money. Sounds like the banks on Wall Street, doesn’t it?
Let me add one more piece of advice: Regardless of your situation, don’t believe embezzlement can’t happen to you. It can.