Case #2: Payroll & Credit Card Scheme Proves Costly To Small Business Firm
Indicted in August 2009, it was alleged that this $23 per-hour bookkeeper—let’s call her “Helen”, put into motion a payroll and credit card scheme that led to her embezzling $531,606 from her small business employer over a period of five years.
The Alleged Scheme:
As part of her job, “Helen” would regularly complete and present her boss with all of the firm’s employee time cards for his review. Once the approved time cards were returned to “Helen” for processing, she made it a point to add an extra 10 hours or so each week to her personal time card without her employer’s knowledge. (“Helen” would later claim that those extra hours were purportedly for overtime hours and vacation pay that she was entitled.) “Helen” would next electronically transmit all of the payroll data to the payroll processing company. Through the simple process of allegedly adding a few hours here and there, “Helen” was able to boost her annual salary to $189,578; an amount that was four times what it should have been. A later discovery allegedly revealed that “Helen” also used company accounts to pay two credit card bills for her daughter that totaled more than $85,000.
The Scheme’s Downfall:
Numerous calls from vendors complaining about non-payments—a duty that was partially “Helen’s”—sparked an investigation that was later turned over to the local police. During the course of the investigation, the police performed a criminal records search and discovered that “Helen” had been convicted in 1998 for stealing over $100,000 from another former employer and in 2002, she was found guilty of improper use of a credit card.
- Past behavior is an excellent predictor of future behavior. A thorough background check can provide valuable information, especially when a candidate is applying for a position of trust. Such an investigation would likely have prevented “Helen’s” hiring. Even if she had failed to note that previous employer on her employment application, and was able to provide a deceptive account for the period of her employment, a criminal records check would have revealed her unscrupulous past.
- The business owner’s review of all employee time cards was a positive step. Unfortunately, his sequence of review was ineffective. This crime would likely have been detected had the owner compared the completed time cards to the computerized pre-run check register.
- As for that $85,000 in credit card charges paid by fraudulently funneling payments through company accounts, no employee should be in position to write company checks or make payments without second party confirmation that such payments are valid.
- Furthermore, while not specifically related to this case, company credit card abuse is a notorious problem within all business sectors. It is imperative that organizations closely monitor and track these purchases on at least a monthly basis. To do less, creates substantial risk.
- The downfall of “Helen” commenced once vendors complained about not receiving their payments for services/goods rendered. This employer made a most positive move by not allowing such complaints to be investigated by the employee charged with processing those transactions. Such complaints should always be investigated by an unbiased supervisor.
Be informed – learn from the experiences of others. Get involved – and YOU will be prepared.
Read more in Business Fraud: From Trust To Betrayal