Small businesses are particularly vulnerable to theft simply because they don’t
have the resources or security
controls in place to stop them.
Employee theft is extremely common; unfortunately, we hear about it or read
about it in the newspapers all of the time.
While it is fair to say, most people don’t steal,
embezzlement does happen; so it only makes good business sense for you to
consider what you can do to minimize your employees’ opportunities to steal.
Below are some general internal procedures that many business owners who use QuickBooks can implement quite easily.
Who should be the QuickBooks Administrator? As the business
owner, you should create the QuickBooks Admin account and password and be
the Administrator for your own QuickBooks company data file. All too often we
have seen or heard from many business owners that their CPA or QuickBooks
ProAdvisor is the Administrator of their QuickBooks file and that they don’t
even know what the Admin password to their own data file is; quite frankly we
do not agree with this practice. Your books are YOUR books, just like your
business is your business. You should not give that kind of control to
anyone.
We have heard of instances where the business owner and the CPA/ProAdvisor
has had a “falling out” and the business owner cannot perform even the simplest
of Administrator functions because they do not know the Administrator password
and the former CPA/ProAdvisor will not tell them what that password is. This
results in the business owner having to pay for password retrieval.
Set Up the External Accountant User. QuickBooks
2009 and newer has the ability to create an External Accountant User.
Create two different External Accountant Users, one that is actually for your
accountant and one that is for you. Learn how to use the Client Data Review tool to monitor what is going on in your
QuickBooks file when you aren’t there to see.
Who should know the Administrator password? Your
CPA/ProAdvisor or in-house bookkeeper should know what the Administrator
password is; otherwise you could be pulled off the jobsite to perform menial
tasks.
The Administrator Account should NOT be used when entering daily
transactions. The Administrator account is a special purpose user
account and should be treated as such.
Each QuickBooks user should have their own QuickBooks user login
account. As the QuickBooks Administrator you should create a user
account for each person who will have access to your company data file, this
includes a user account for yourself which you will use when entering
transactions. When you create user accounts you are the one who controls who
can access what information.
A word of caution for Enterprise users, the permission setting in the
Enterprise version are much tighter than in Pro or Premier and you do need to be
careful when setting up user permissions or you can effectively prevent an
employee from performing the tasks that you do want them to be responsible
for.
When should the Administrator Account be used? We recommend
that you use the Administrator login account when reconciling the monthly
checking and credit card accounts; and then on an “as needed” basis, as there
are times when it is required that you, your CPA, or bookkeeper must be logged
into QuickBooks in single-user mode as the QuickBooks administrator – such as
changing companywide preferences in QuickBooks or granting permission for a
third-party application to access your QuickBooks company data file.
Set closing dates and use the Closing Date Exception
Report. On a monthly or quarterly basis, after you have reconciled
the bank and credit card statements or after the quarterly
payroll tax reports have been completed; set a closing date with a password;
closing dates are found from the Edit menu -> Preferences -> Accounting
-> Company Preferences tab. This will prevent accidental or unauthorized
changes to previously reconciled transactions, because only those people who
know the password will be allowed to make changes, and get them into the habit
of using the memo field to indicate why a cleared transaction was changed. You
can then run a Closing Date Exception Report, found
from the Reports menu -> Accountant & Taxes -> Closing Date Exception
Report.
Monitor Accounts Receivable Reports. Implement a procedure
that by a specified time on Friday that you receive an Open Invoice
Report, found from the Reports menu -> Customers &
Receivables -> Open Invoices. You should review this report and then leave
it for your mailroom clerk for Monday morning, so that she can make notes of
payments received during the week and return it to you after mail time on
Friday. You can then compare the previous week’s report to the current weeks
report for any discrepancies. For example, the mail clerk indicates that
payment for Invoice number 1001 was received on Tuesday, but the current Open
Invoice Report shows that it is still outstanding.
Monitor your Accounts Payable Reports. Don’t leave it up to
someone else to decide which bills get paid and which ones will be delayed….you
could be in for an unpleasant surprise!
How often does your company pay its bills – weekly, bi-weekly, monthly?
Implement a procedure in which you receive an
Unpaid Bills Detail Report, found from the Reports
menu -> Vendors & Payables -> Unpaid Bills Detail by a specified time
on a certain day of the week with the current bank balance indicated.
Review the report and YOU decide who gets paid and who doesn’t; maybe even
make a few phone calls if cash flow is tight. The day before it’s time to pay
the bills, ask for the current bank balance and make any necessary adjustments.
Leave this marked up report for your Accounts Payable clerk for the morning that
they are to cut the checks. Keep in mind that taking advantage of early payment
discounts could help pay for other upcoming bills.
Third Party Tools – Check out AuditMyBooks, a QuickBooks 3rd
party tool, which double-checks your accounting records for problems.
The suggestions contained in this article are not designed to turn you, the
business owner, into an untrusting boss but rather are suggestions to help you
maintain control of your business and its financial affairs.
Sunday, March 31, 2013
Home > News > Chicagoland Ex-CPS worker gets probation for stealing from school
A former Chicago Public Schools teaching assistant was sentenced to four years of
probation after she admitted stealing more than $24,000 from a Northwest Side
school to pay off credit card bills, prosecutors said.
Sonia Lopez, 50, pleaded guilty Wednesday to one count of felony theft before Judge Maura Slattery-Boyle.
In addition to probation, Slattery-Boyle ordered Lopez to repay $24,544.69 to the school that she stole from, said Lisa Gordon, a spokeswoman for the Cook County state's attorney's office.
Lopez had served as a teaching assistant and worked in other positions at Thurgood Marshall Middle School, 3900 N. Lawndale Ave., prosecutors said when she was arrested and charged in August. Lopez had worked for the school since 1994.
Her responsibilities included collecting student fees, making bank deposits and paying bills, prosecutors said last year.
Prosecutors determined that Lopez had issued 14 fraudulent checks to herself totaling more than $21,000. Lopez hid the thefts by falsifying school records to make it appear that they were for legitimate purchases.
Lopez also pocketed nearly $3,000 in cash collected from students for fees and other payments, prosecutors said.
Sonia Lopez, 50, pleaded guilty Wednesday to one count of felony theft before Judge Maura Slattery-Boyle.
In addition to probation, Slattery-Boyle ordered Lopez to repay $24,544.69 to the school that she stole from, said Lisa Gordon, a spokeswoman for the Cook County state's attorney's office.
Lopez had served as a teaching assistant and worked in other positions at Thurgood Marshall Middle School, 3900 N. Lawndale Ave., prosecutors said when she was arrested and charged in August. Lopez had worked for the school since 1994.
Her responsibilities included collecting student fees, making bank deposits and paying bills, prosecutors said last year.
Prosecutors determined that Lopez had issued 14 fraudulent checks to herself totaling more than $21,000. Lopez hid the thefts by falsifying school records to make it appear that they were for legitimate purchases.
Lopez also pocketed nearly $3,000 in cash collected from students for fees and other payments, prosecutors said.
In many embezzlements, a gambling problem blamed
Before 2003, Bob Pedersen had limited knowledge about the evils of compulsive
gambling.
But a shocking crime that came to light midway through that year forever changed Pedersen and the company he heads, Goodwill Industries of North Central Wisconsin.
The Menasha-based nonprofit organization's controller was accused of embezzling more than $500,000 to satisfy a gambling addiction. The controller, who lost the money at various casinos in Wisconsin, eventually was convicted, sentenced to five years in prison and ordered to make restitution.
"I wasn't completely aware of the nature of intensity of what goes on with gambling addictions," Pedersen, Goodwill's president and chief executive officer, said recently in reflecting on the nearly 10-year-old embezzlement that rocked Goodwill. "It's a big issue. And a lot of people are into some pretty deep water."
Goodwill, which has recovered all but $150,000 of the losses through insurance and partially paid restitution, was among the first high-profile gambling-related embezzlement victims in the Fox Valley. But there have been several similar cases in which gambling problems appear to have contributed to embezzlement, The Post-Crescent reported ( ).
In 2011, a woman was arrested, imprisoned and ordered to pay restitution for embezzling nearly $500,000 from the Community Blood Center in Grand Chute. The employee, a former account specialist, said she took the money to feed her gambling addiction.
Last year, charges were filed — and then dropped — against an Appleton woman who was accused of embezzling more than $300,000 over a two-year period from Thrivent Financial for Lutherans. Prosecutors dropped the case after an agreement was reached with the company. The woman was required to pay back the misappropriated funds.
She told police she had a gambling addiction and began to steal when she could no longer keep up with bills.
Most recently, the treasurer of the Fox Valley Youth Baseball League was sentenced to two months in jail and placed on probation earlier this month for stealing $20,000 from the organization. The defendant also blamed a gambling addiction.
Pedersen is convinced that there are other embezzlements from local businesses arising from gambling losses that never make it to public view.
"My sense is it's a genuine problem," he said. "It's real. There's no question that it's an issue and the fact that gambling is so prevalent in Wisconsin just contributes to the problem."
In the years since the Goodwill embezzlement went public, Pedersen said he has been approached by representatives of other companies.
"They say, quietly, that 'this has happened to us,'" he said. "A whole lot of this happens quietly and under the radar. They don't want the public to have any sense at all that they're vulnerable."
Goodwill, which tightened its financial control in the wake of the embezzlement case, didn't shy away from the negative publicity surrounding the prosecution of its former controller. Instead, the organization acknowledged the massive theft in a book titled "Betrayal," which was distributed to many nonprofit agencies in the region.
Pedersen said Goodwill's openness brought awareness to the issue of compulsive gambling.
"It was useful on a number of fronts," he said of the decision to openly address the embezzlement. "It spoke to our values and our leadership. It began the conversation (about the disastrous effects of compulsive gambling). There's a lot more people talking about it."
Rose Gruber, executive director of the Wisconsin Council on Problem Gambling, said embezzlements are among the many unfortunate outcomes of out-of-control gambling.
"We hear more and more about (big embezzlement losses due to compulsive gambling)," she said. "It's not all that uncommon, unfortunately."
The majority of gamblers who steal from their employers are otherwise law-abiding citizens, she said. "For the most part, they have never been in trouble before."
But once they get immersed in the lure of gambling, the losses can add up quickly.
"The more you do it, the more you need that high," Gruber said. "It progresses as you go. It almost becomes make-believe money."
But the money is very real to those who are touched by problem gamblers.
"Most people can put $30 in their pocket, go to a casino and walk away when it's gone," said Jerry Bauerkemper, executive director of the Nebraska Council on Problem Gambling. "This population, because of an addiction (to gambling), won't walk away. They chase losses and take bigger and bigger risks."
Compulsive gamblers typically spend all of their money first, including cash advances from as many as 12 credit cards, and often gamble away money from friends and relatives, Bauerkemper said.
"Sometimes, they make that jump into criminal behavior and take money from a company or the government," he said.
Cathleen Starck Wille, a counselor with The Samaritan Counseling Center of the Fox Valley, said a gambling addiction can have dire consequences.
"It can lead to embezzlement. You always hope that someone will stop or get help before they get to that point," she said. "They always believe they are going to pay it back with another win.
"They just know that they can't stop."
But a shocking crime that came to light midway through that year forever changed Pedersen and the company he heads, Goodwill Industries of North Central Wisconsin.
The Menasha-based nonprofit organization's controller was accused of embezzling more than $500,000 to satisfy a gambling addiction. The controller, who lost the money at various casinos in Wisconsin, eventually was convicted, sentenced to five years in prison and ordered to make restitution.
"I wasn't completely aware of the nature of intensity of what goes on with gambling addictions," Pedersen, Goodwill's president and chief executive officer, said recently in reflecting on the nearly 10-year-old embezzlement that rocked Goodwill. "It's a big issue. And a lot of people are into some pretty deep water."
Goodwill, which has recovered all but $150,000 of the losses through insurance and partially paid restitution, was among the first high-profile gambling-related embezzlement victims in the Fox Valley. But there have been several similar cases in which gambling problems appear to have contributed to embezzlement, The Post-Crescent reported ( ).
In 2011, a woman was arrested, imprisoned and ordered to pay restitution for embezzling nearly $500,000 from the Community Blood Center in Grand Chute. The employee, a former account specialist, said she took the money to feed her gambling addiction.
Last year, charges were filed — and then dropped — against an Appleton woman who was accused of embezzling more than $300,000 over a two-year period from Thrivent Financial for Lutherans. Prosecutors dropped the case after an agreement was reached with the company. The woman was required to pay back the misappropriated funds.
She told police she had a gambling addiction and began to steal when she could no longer keep up with bills.
Most recently, the treasurer of the Fox Valley Youth Baseball League was sentenced to two months in jail and placed on probation earlier this month for stealing $20,000 from the organization. The defendant also blamed a gambling addiction.
Pedersen is convinced that there are other embezzlements from local businesses arising from gambling losses that never make it to public view.
"My sense is it's a genuine problem," he said. "It's real. There's no question that it's an issue and the fact that gambling is so prevalent in Wisconsin just contributes to the problem."
In the years since the Goodwill embezzlement went public, Pedersen said he has been approached by representatives of other companies.
"They say, quietly, that 'this has happened to us,'" he said. "A whole lot of this happens quietly and under the radar. They don't want the public to have any sense at all that they're vulnerable."
Goodwill, which tightened its financial control in the wake of the embezzlement case, didn't shy away from the negative publicity surrounding the prosecution of its former controller. Instead, the organization acknowledged the massive theft in a book titled "Betrayal," which was distributed to many nonprofit agencies in the region.
Pedersen said Goodwill's openness brought awareness to the issue of compulsive gambling.
"It was useful on a number of fronts," he said of the decision to openly address the embezzlement. "It spoke to our values and our leadership. It began the conversation (about the disastrous effects of compulsive gambling). There's a lot more people talking about it."
Rose Gruber, executive director of the Wisconsin Council on Problem Gambling, said embezzlements are among the many unfortunate outcomes of out-of-control gambling.
"We hear more and more about (big embezzlement losses due to compulsive gambling)," she said. "It's not all that uncommon, unfortunately."
The majority of gamblers who steal from their employers are otherwise law-abiding citizens, she said. "For the most part, they have never been in trouble before."
But once they get immersed in the lure of gambling, the losses can add up quickly.
"The more you do it, the more you need that high," Gruber said. "It progresses as you go. It almost becomes make-believe money."
But the money is very real to those who are touched by problem gamblers.
"Most people can put $30 in their pocket, go to a casino and walk away when it's gone," said Jerry Bauerkemper, executive director of the Nebraska Council on Problem Gambling. "This population, because of an addiction (to gambling), won't walk away. They chase losses and take bigger and bigger risks."
Compulsive gamblers typically spend all of their money first, including cash advances from as many as 12 credit cards, and often gamble away money from friends and relatives, Bauerkemper said.
"Sometimes, they make that jump into criminal behavior and take money from a company or the government," he said.
Cathleen Starck Wille, a counselor with The Samaritan Counseling Center of the Fox Valley, said a gambling addiction can have dire consequences.
"It can lead to embezzlement. You always hope that someone will stop or get help before they get to that point," she said. "They always believe they are going to pay it back with another win.
"They just know that they can't stop."
Church embezzlement hearing rescheduled in Indiana
A hearing at which a rural Yorktown woman is expected
to plead guilty to embezzling almost $200,000 from a Muncie church is now
scheduled for May 28.
Angela Renee Linder, 42, is charged with wire fraud in U.S. District Court in Indianapolis. A change-of-plea and sentencing hearing had been set for May 23, but it was recently rescheduled.
The charge is a federal offense that carries a maximum 20-year prison term and $200,000 fine. Court records reflect Linder and her attorney have negotiated a plea agreement.
Linder worked at Union Chapel United Methodist Church from 2001 through May 2010, and was in charge of handling payroll, preparing tax returns and the church’s credit card accounts, according to U.S. Attorney Joe Hogsett’s office.
She is accused of using those credit cards, and writing fraudulent checks drawn on church accounts, to pay for her personal expenses, and with paying herself more than $50,000 in unearned wages.
Angela Renee Linder, 42, is charged with wire fraud in U.S. District Court in Indianapolis. A change-of-plea and sentencing hearing had been set for May 23, but it was recently rescheduled.
The charge is a federal offense that carries a maximum 20-year prison term and $200,000 fine. Court records reflect Linder and her attorney have negotiated a plea agreement.
Linder worked at Union Chapel United Methodist Church from 2001 through May 2010, and was in charge of handling payroll, preparing tax returns and the church’s credit card accounts, according to U.S. Attorney Joe Hogsett’s office.
She is accused of using those credit cards, and writing fraudulent checks drawn on church accounts, to pay for her personal expenses, and with paying herself more than $50,000 in unearned wages.
Thursday, March 28, 2013
CVUSD board member pleads not guilty to embezzlement charges in California
A Coachella Valley Unified School District board member who worked for Farmers Insurance pleaded not guilty today to charges she kept more than $12,000 in cash that should have gone to her employer.
Juanita Delara Duarte, 61, who is charged with one felony count of grand theft, was ordered to return to court April 9 for a felony settlement hearing, and the judge reduced her bail from $60,000 to $12,700. She held up a piece of paper to hide her face at her arraignment this afternoon at the Larson Justice Center in Indio.
Duarte was arrested Wednesday at her home in Coachella.
John Hall of the Riverside County District Attorney's Office said the theft allegation was unrelated to her school board position.
Coachella Valley Unified School District Superintendent Darryl Adams released a statement saying he was "shocked and saddened" to hear about Duarte's arrest.
"I know that this news is disturbing to the Coachella Valley Unified School District community, so I want to confirm that this situation does not involve her work with our school district," Adams said. "I have known Ms. Duarte for the past three years, and during this time, I have seen her to be dedicated to our public schools and the children we serve. At this time, law enforcement is investigating the matter, and I believe that we all should reserve judgment and comments until the facts are gathered. When law enforcement has completed its work, the district will make decisions based on facts and the law."
In January 2011, a customer told Farmers Insurance that he made two cash payments to Duarte in February 2010 and September 2010, but never got full credit for his auto insurance payment, Hall said.
Farmers audited Duarte and found that, from December 2008 to February 2011, she "received cash payments from customers of more than $12,700, but those cash payments were never applied to customer policies or deposited into Farmers Insurance accounts," Hall said.
Farmers identified 32 of Duarte's clients who paid insurance premiums in cash, which was "never properly deposited into the company's accounts, nor did the customers receive credit for the payments," Hall said.
As of Wednesday, Duarte still hadn't deposited the payments into any Farmers accounts, Hall said.
"The investigation revealed that Duarte primarily targeted low-income, Spanish-speaking victims in the Mecca area of the Coachella Valley," Hall said.
Duarte had an office listed on Highway 111 in Indio.
Wednesday, March 27, 2013
Ex-St. Louis treasurer's employee guilty of taking public's money
A former employee of the St. Louis Treasurer’s Office stole almost a quarter-million dollars from a struggling charter school and enjoyed a no-show public job worth more than $175,000 in salary over five years, a federal jury in St. Louis decided Tuesday.
After two hours of deliberation, jurors convicted Fred W. Robinson, 71, of all charges. One count of wire fraud and two counts of federal program theft involved embezzlement of money from the Paideia Academy, a failed charter school. Five counts of federal program theft were related to his treasurer’s office salary from 2006-10.
Robinson showed little reaction to the verdicts, looking around and sighing once. He could face up to 20 years in prison when sentenced July 19 by U.S. District Judge Audrey G. Fleissig.
Afterward, Diane Dragan, one of his public defenders, would say only, “There will be an appeal.”
Robinson was fired from his city job a few days after newly elected Treasurer Tishaura O. Jones took office in January.
The eight-day trial shed new light on the operation of the office run for 31 years by Larry Williams, a personal friend of Robinson’s.
But it also may mark the end the investigation of Williams’ office. He was neither charged nor called as a witness by either side. Williams, a Democrat, did not seek re-election last year.
U.S. Attorney Richard G. Callahan issued a statement Tuesday that said: “No further charges are anticipated unless or until additional evidence is developed.”
In closing arguments and throughout the trial, Assistant U.S. Attorney Hal Goldsmith focused on Robinson, not the office.
“This defendant lived a life of fraud,” he told jurors, detailing Robinson’s no-show job and use of state and federal funds to buy and rehabilitate a building where he planned to open a day care center.
Prosecutors said he wanted to curry favor with the attractive bartender of a restaurant he frequented by getting her a job as the center’s director. Robinson and the friend were to collect salaries and split profits equally, according to testimony.
Goldsmith said that Robinson, chairman of Paideia’s board, at first tried to buy the proposed day care site from the city’s Land Clearance and Redevelopment Authority, but was rejected for lack of assets.
“He turned to the only bucket of money he knew,” Goldsmith said, getting the Paideia board to authorize the purchase while knowing that the school’s “ship was sinking” and that the money was “desperately needed” by students.
Robinson was quoted as telling a police officer working undercover for the FBI: “I own this school,” and, “That board really serves at my pleasure.”
He applied for a license to open the day care in a building at 4028 West Florissant Avenue but concealed that fact — and that he had an ownership interest — from board members, school administrators, state officials and the school’s sponsors, Goldsmith said.
The prosecutor said Robinson shifted money among school accounts to pay the day care contractor, working “feverishly” to finish before Paideia ran out of money. And he did it despite being told that the education funds were only to be used for kindergarten through eighth grade, Goldsmith said.
Felicia Jones, a public defender, said one board member, a longtime Robinson friend, testified that the board did know about the day care and Robinson’s role in it.
The board and school officials knew Robinson wanted to open a “feeder” day care center to reach pre-kindergarten students and improve the educational level of students entering Paideia, she said.
It never opened.
NO-SHOW JOB
Prosecutors claimed since Robinson’s indictment in 2011 that he failed to do any work for the treasurer’s office from 2006-2010, while he was earning a $35,360 yearly salary. But Goldsmith and witnesses suggested it may have gone on for much longer.
Robinson’s former supervisor, Roy White, told jurors that he had been given the job of signing off on Robinson’s time sheets in the mid- to late 1990s, when Robinson supposedly worked 40-hour weeks driving city streets looking for parking-related problems. The treasurer’s office has authority over city parking issues.
White testified that he could not verify Robinson had done the work, and said Robinson’s “reports” of a sentence or two were of little or no value. He said he raised the concerns with Williams, who told him his only duty with regard to Robinson was ensuring that his weekly hours added up to 40.
White also told the court that the first time he assigned Robinson work was a surveillance job in response to a tip about thefts from a treasurer’s office building in 1998. Robinson complained that he felt threatened by gang members and said he would not be doing any more work for him, White said. Williams’ chief of staff, Tom Stoff, then called White into the office and told him not to assign work to Robinson again, White said.
Other current or former employees of the treasurer’s office said that they were not aware of Robinson’s role, never saw him and that his reports had no value, particularly after parking operations were outsourced in 2009.
FBI Special Agent Monique Comeau testified that a GPS device put on Robinson’s car showed he spent the bulk of his time at Paideia or the day care center, or traveling to the treasurer’s office for four or five minutes twice a month to pick up his check.
Dragan, the defense lawyer, did not challenge the allegations about Robinson’s failure to work. She attacked the underlying charge, saying that Robinson did not work for any entity that received federal funds. The treasurer’s Parking Division receives funds from tickets, meters and parking lots and is a separate agency, she argued.
“There are no federal funds missing,” she insisted.
Dragan offered an alternate path to an acquittal on those charges. She told jurors that if Robinson did no work, then he was not an agent or employee of anyone. “If you believe he was not truly an employee ... then you must find him not guilty of federal program theft.”
Jurors who agreed to talk after the verdict said they had expected to hear from Williams. Attorneys on both sides declined to comment on why he was not called. But as a matter of procedure, a lawyer in federal court is not supposed to call a witness with knowledge that the person plans to assert a Fifth Amendment right against self-incrimination.
Jones, the new treasurer, contacted a reporter after the verdict to emphasize that Robinson had worked for her predecessor.
“One of the first things I did here was get rid of Mr. Robinson,” she said. Asked why, she responded that his position had been eliminated. Asked what position he held, she responded, “We don’t know.”
Craft vendor arrested at Shawnee High School on embezzling fugitive warrant in Pennsylvania
A fugitive wanted on charges of embezzlement in New Mexico and Virginia was arrested Saturday at a craft fair at Shawnee High School, police said Monday.
Christine Winfield, 43, of Philadelphia, was taken into custody at 9 a.m. after officers received information that she was a vendor at the craft fair at the school on Tabernacle Road. She was placed in the Burlington County Minimum Security Facility in Pemberton Township on $25,000 bail pending extradition to New Mexico.
Former CSUS housing employee accused of embezzlement in California
California State University, Sacramento, police have arrested a former housing employee on suspicion of embezzlement.
Laini Harris, 45, had been under investigation for some time, according to a news release from the university Police Department.
Harris was employed at the Upper Eastside Lofts, a CSUS student apartment complex. She is accused of misappropriating residents' rent payments.
Harris was arrested Monday, booked at Sacramento County Jail and released the same day.
According to Sacramento Superior Court online records, she is to be arraigned April 11 on a misdemeanor count of embezzlement.
New details about Missouri State University embezzlement case, including Brixey's wife still employed at university
Guilty-- that's how a former Missouri state university employee pleaded Tuesday to charges of stealing more than a million dollar dollars from the school.
The US attorney's office says 48-year-old Mark Brixey Embezzled for nearly ten years. Tuesday the public learned when his scheme started, how it worked, and how much money he took every year.
Back in August MSU officials said Brixeym the former bookstore director, had stolen at least $400,000. Tuesday we learned it was a whole lot more.
Wire fraud, money laundering, filing a false tax report-- the US attorney's office, the secret service, and local law enforcement say Brixey did all three.
"He repeatedly abused his position and exploited the weaknesses of the university's accounting system," explained Tammy Dickinson, the US Attorney for the Western District of Missouri during a news conference.
It began, according to Dickinson, in 2003 with nearly $29,000 stolen. The dollar amount grew every year, peaking at over $194,000 in 2010 before Brixey resigned last August.
He got the money from checks that were written by textbook companies that participate in the university's book buy-back program. The checks were made out to MSU so Brixey went to a different department to cash them. He said he needed the money to give to students who were trying to sell their textbooks. In 2011 one of those book companies started paying Brixey in cash.
The US attorney's office says 48-year-old Mark Brixey Embezzled for nearly ten years. Tuesday the public learned when his scheme started, how it worked, and how much money he took every year.
Back in August MSU officials said Brixeym the former bookstore director, had stolen at least $400,000. Tuesday we learned it was a whole lot more.
Wire fraud, money laundering, filing a false tax report-- the US attorney's office, the secret service, and local law enforcement say Brixey did all three.
"He repeatedly abused his position and exploited the weaknesses of the university's accounting system," explained Tammy Dickinson, the US Attorney for the Western District of Missouri during a news conference.
It began, according to Dickinson, in 2003 with nearly $29,000 stolen. The dollar amount grew every year, peaking at over $194,000 in 2010 before Brixey resigned last August.
He got the money from checks that were written by textbook companies that participate in the university's book buy-back program. The checks were made out to MSU so Brixey went to a different department to cash them. He said he needed the money to give to students who were trying to sell their textbooks. In 2011 one of those book companies started paying Brixey in cash.
Suspicious? Officials wouldn't say.
"We're just here today to talk about the university as a victim," one of the assistant attorneys told reporters.
The ordeal has been tough for new university President Clif Smart.
"When we learned of that theft it was probably the saddest day I've had since I took this position," Smart remembered, and a rude awakening as well.
"The goal is to make sure there is no place on campus where we receive cash that is unsupervised."
He's spent the year reviewing policies campus-wide making major changes to the bookstore specifically.
"Those actions range from better segregating duties of the people in the bookstore, new policies to eliminating exceptions, policies at the bursar's office, policies regarding transactions, to better oversight by the department of financial services," Smart listed.
All to ensure wire fraud, money laundering, and filing a false tax report are charges never again connected to MSU.
Brixey is out on bond but faces a 43 year prison sentence. His attorney did not return our call Tuesday.
There is another sensitive issue at play here. Mark Brixey's wife is a university employee in the admissions office. As of right now that's not changing. But Smart tells us in light of Brixey's guilty plea the university will have to decide what- if anything- she knew about the embezzling.
The university has a million dollar insurance policy to protect against employee theft. Additionally, law enforcement recovered $144,000 of what Brixey stole. So Smart is confident the university will recoop almost all of its money.
Saturday, March 23, 2013
Tenured McGill University professor fired after accounting ‘twirps’ uncover $159,500 in improper spending
Avi Chaudhuri was an academic star at McGill University who had completed his PhD under a Nobel laureate at UC Berkeley and held a prestigious James McGill professorship recognizing his “scholarly excellence.”
In 2008, when questions were raised about his spending of research money, the psychology professor had little patience for the university-hired auditors who came nosing around.
“I am not going to tell some twirp with an accountancy diploma who my professional colleagues are so that he can call around and embarrass me,” he complained to his dean in December 2008.
“I will also be telling [the auditors] that I feel I have co-operated enough with their process and that I must now devote myself to scholarly work, including finishing up a major book for publication this summer.”
Seven months later, McGill fired Mr. Chaudhuri, and it was the accounting “twirps” who were largely responsible, digging up $159,500 in improper spending. In a decision rendered March 1, Quebec’s labour relations commission upheld his dismissal, agreeing with the auditors’ finding that the professor “intentionally misused funds in order to obtain personal benefits.”
Mr. Chaudhuri’s downfall began at a time of personal trauma. His mother in Toronto had suffered a debilitating stroke, and in 2004, Mr. Chaudhuri arranged for her to be flown to India so she could die in her homeland. A month before the flight, he used his McGill purchasing card to buy a $19,500 mattress designed for people with limited mobility.
He said he had shipped the mattress with his mother to be used in a study on stroke victims in India, denying that he had actually bought it for his mother. But the adjudicator hearing the case, Jean Paquette, concluded there was no evidence that Mr. Chaudhuri had ever planned a stroke study. When first questioned, Mr. Chaudhuri initially said the mattress was in a warehouse in India, but he later acknowledged to his dean that it was in an apartment owned by his family in Calcutta.
‘Chaudhuri’s version contains too many inconsistencies and implausibilities to be credible and preponderant’
The university also examined 14 trips to India that Mr. Chaudhuri made between 2006 and 2008. He charged the university and funding agencies a total of $140,000 for the trips, but the auditors questioned the legitimacy of the expenses.
The adjudicator concluded that rather than conducting research related to his university position during his travels, Mr. Chaudhuri was working on behalf of PAC Med Biotech, a private consulting company he runs with family members.
“[Mr.] Chaudhuri’s version contains too many inconsistencies and implausibilities to be credible and preponderant,” Mr. Paquette wrote.
In advising him of his dismissal, McGill principal Heather Munroe-Blum accused Mr. Chaudhuri of misappropriating funds, misrepresenting his activities and showing “blatant disregard” for university rules.
“All of this leads to an irreparable breach of trust upon which the academy is founded and upon which the collegial relationship of professors to their universities depends,” she wrote.
Jim Turk, executive director of the Canadian Association of University Teachers, said it is rare for a tenured professor to be dismissed in Canada.
The CAUT supported Mr. Chaudhuri’s legal challenge and Mr. Turk said Tuesday that he is troubled by the labour relations commission’s decision. He said Mr. Chaudhuri is currently in India and does not wish to comment on his case. The CAUT are “reviewing what options there are for him at this point,” Mr. Turk said, adding that “the consequences are devastating” for Mr. Chaudhuri.
He said pressure on scientists to combine academic and commercial work has led to a blurring of the lines, and Mr. Chaudhuri’s case was anything but clear-cut. “There have to be the kind of clear guidelines that there haven’t historically been about how you separate it,” he said.
Hanover woman accused in embezzlement of Little League funds in Virginia
The former president of the Ashland Little League, a staple of summer athletics in the Hanover County town for more than four decades, is being accused of embezzlement.
A search warrant filed last week in Hanover Circuit Court states that an investigation into the loss of more than $23,000 began March 8 when members of the league board approached investigators with a document saying former president Lynn Newell “had taken monies from ALL totaling $23,763.”
A document referred to in the court records is “an agreement … signed by Newell … stating that she had taken monies from ALL” and “would repay all of the aforementioned amount” of $23,763.13. It was not clear in court records to what extent the money has been repaid.
Ashland police searched Newell’s house under terms of the warrant. No criminal charges have been filed.
Newell, who was president of the league last year, declined to comment when reached Thursday; Ashland Police declined to comment except to say that the investigation is ongoing.
The court document shows that Newell is accused of falsifying signatures, allowing her to withdraw funds from league accounts. Key transactions were captured on bank video cameras, according to the search warrant, and included deposits of league funds into accounts partly controlled by Newell.
Vernon E. Inge Jr., a lawyer who represents the league, said Ashland Little League “is in solid financial shape and will be continuing to deliver the kind of baseball and softball experience that our young people have expected and enjoyed for more than four decades.
“We are cooperating with the investigation in any way we can.”
Opening day is scheduled for next month.
The court document also says Newell volunteered to help set up an account in her name to offset medical and other costs associated with the recovery of a Hanover County child who had been severely injured in an automobile crash last year.
The court document states that the mother of the child, a friend of Newell’s, became concerned when there appeared to be no record of payments friends told her they had made into the fund to defray medical costs. The injured youth is doing well, his family said Thursday, asking for privacy.
The search warrant says Newell told prospective donors to make payments for the youth out to “Lynn Newell.” Bank officials told investigators, according to the court document, that checks made out to the recovery fund were transferred to various family accounts controlled by Newell.
Ashland Little League parents were informed Thursday about an investigation involving league funds, but no details were provided.
“We are asking for your trust, confidence, and support,” parents were told as the league moves to better secure its financial safeguards and continue with new programs and physical improvements.
“We continue to invest in upgrading our facilities and equipment to create the best experience we can for our families,” the letter said.
Ex-CPS worker gets probation for stealing from school in Chicago
A former Chicago Public Schools teaching assistant was sentenced to four years of probation after she admitted stealing more than $24,000 from a Northwest Side school to pay off credit card bills, prosecutors said.
Sonia Lopez, 50, pleaded guilty Wednesday to one count of felony theft before Judge Maura Slattery-Boyle.
In addition to probation, Slattery-Boyle ordered Lopez to repay $24,544.69 to the school that she stole from, said Lisa Gordon, a spokeswoman for the Cook County state's attorney's office
Lopez had served as a teaching assistant and worked in other positions at Thurgood Marshall Middle School, 3900 N. Lawndale Ave., prosecutors said when she was arrested and charged in August. Lopez had worked for the school since 1994.
Her responsibilities included collecting student fees, making bank deposits and paying bills, prosecutors said last year.
Prosecutors determined that Lopez had issued 14 fraudulent checks to herself totaling more than $21,000. Lopez hid the thefts by falsifying school records to make it appear that they were for legitimate purchases.
Lopez also pocketed nearly $3,000 in cash collected from students for fees and other payments, prosecutors said.
Friday, March 22, 2013
Fraud in the Church: Lessons from ACFE Data
FROM http://blog.managingyourchurch.com -
While preparing recently for a presentation to seminary
students, I came across some interesting statistics from the Association of
Certified Fraud Examiner’s 2012 Report to the
Nations. The information is particularly insightful for church leaders
who are focused on minimizing the risks of fraud and embezzlement with church
money.
ACFE
releases its report every other year. Of note from the latest
one:
Between January 2010 and December 2011, ACFE tracked 1,388 cases of “occupational fraud”
worldwide:- Of the cases, 10.4 percent occurred within a not-for-profit organization, up from 9.6 percent in 2010, but down from 14.3 percent in 2008;
- The median theft involved with the cases was $100,000, up from $90,000 in 2010, but down from $109,000 in 2008;
- Of all the cases, 87 percent involved first-time offenders with no prior criminal records.
- At least two to four media headlines nationwide each month involving an arrest or prosecution of a bookkeeper, accountant, or pastor suspected of embezzling from their church.
- An average theft amount of at least $100,000, and usually between $200,000 and $400,000, all stolen over a period of several years.
- A perpetrator who has no prior criminal record. Personal debt, a medical crisis, or the unexpected loss of a spouse’s job creates unexpected pressure, with many rationalizing their acts as “temporary loans” that they intend to repay—but never do. Or, some believe they are underpaid and are “owed” the additional compensation.
- Remember to consistently evaluate the pay structures of your pastors and staff, and watch for stressful events in their lives that could lead to heavier financial pressures. The 2012-2013 Compensation Handbook for Church Staff can help set fair ranges of pay and benefits. (And, by the way, our latest national church compensation survey is underway—please take it today and receive $15 toward downloadable resources on YourChurchResources.com.)
- Use internal controls to segregate duties and involve multiple people in all of the various steps involving money—from collections to counting to accounting to bill-paying. Our Essential Guide to Internal Controls for Churches eBook and our Essential Guide to Church Finances both go deeper on how to do this.
- Don’t underestimate the value of internal and external audits. An external audit involving a qualified, independent outside firm requires time and money. Consider doing one about every three years because it helps ensure no gaps or loopholes have developed over time. Internal audits conducted by church staff and volunteers can be done on the years when an external audit isn’t done; these can simply review policies and procedures in place to make sure everything works right and looks right. Marian Liautaud’s article, “Surviving a Church Financial Audit,” offers additional tips and insights.
Thursday, March 21, 2013
Former school employee’s embezzlement case frozen in North Carolina
An embezzlement case involving a Vance County Schools employee is frozen from further hearings pending complete discovery.
Delia Celestine Jones appeared before Judge Henry Hight in Vance County Superior Court on Wednesday. She faces four felony embezzlement charges from her time as a payroll department bookkeeper at Northern Vance High School.
Jones, a 42-year-old with a 725 Thomas Road address, is being represented by attorney Michael Rogers. She was terminated by the public school system Oct. 24, 2012.
Assistant District Attorney Allison Capps told Hight officials with Vance County Schools continue to work on case details with prosecutors to complete the investigation so discovery materials can be presented.
According to court files, Jones is charged with taking money in “misapply” incidents that began in July 2009. The amounts add up to $38,382.49.
Jones is currently free on $50,000 bail. She turned herself in on Nov. 8.
Wednesday, March 20, 2013
Judge departs from guidelines, sends woman to prison for embezzlement from Little League in Michigan
After some contentious arguments between lawyers, 46th Trial Court Judge George J. Mertz sent a Grayling woman who stole money from the Grayling Little League and two funds used to support student athletes to prison on Monday.
Mertz ruled that there was substantial evidence to depart from Michigan Department of Corrections guidelines, which recommended that Sandra Enos serve zero to 11 months in jail.
Instead, Mertz sentenced Enos to serve a minimum of 36 months to five years in prison for two counts of embezzlement $1,000-$20,000 regarding funds taken from the Grayling Little League accounts and funds for Grayling High School Spirit Club accounts. Mertz sentenced Enos to serve 36 months to 14 years in prison for one count of forgery regarding Grayling Little League financial records.
Mertz zeroed in on memorial contributions, given by the family of Jim McClain, one of the founders of the Grayling Little League, as one of his main reasons for departing from sentencing guidelines. McClain died on Feb. 6, 2012 after a battle with cancer.
"They were trying to honor him by having donations given in his honor," Mertz said. "I imagine that was very comforting to them at a time when they were grief stricken. For you to take the money, given in loving memory for someone who did volunteer to help the kids, I find that in itself to be totally reprehensible and find the guidelines to be woefully inadequate."
Mertz added the crimes are going to cause a level of distrust for children, parents, potential financial supports and vendors who were not paid because of the embezzlement.
"This is going to have a ripple effect for years to come," Mertz said. "You can't say you're going to repay the money, do a little jail time and make things right."
Enos plead guilty to the charges on Feb. 20. Two counts of embezzlement $1,000-$20,000, from separate cases involving the Grayling Little League accounts, were dismissed as part of a plea deal. Two counts of forgery were also dismissed. Two misdemeanor cases of embezzlement-agent under $200, which were pending in Crawford County District Court, were also dismissed.
The funds involved in the cases came from checks donated to the Grayling Little League, Grayling Viking Football Club and the Grayling High School Spirit Club, totaling $21,601.22.
Enos will have to pay $19,146.22 in restitution back to the Grayling Little League, $900 to the Grayling High School Spirit Club and $1,465 to the Grayling Viking Football Club. The parent-run spirit clubs solicit donations to ensure that student athletes are properly nourished and energized before their games are played outside the community.
Enos, in a written statement given to the court before her sentencing, said she used the money to pay bills and buy groceries.
Enos apologized for the emotional toll her actions have caused, for breaking trust of the people in the organizations she was involved with and not managing the funds for their appropriate purpose.
"I hope that people will continue to volunteer and nurture the youth in our community because they are our future," Enos said in verbal statement in court.
Scott Gabriel, president of the Grayling Little League Board of Directors, said taking the money hurt the kids and several others.
"You hurt me and consequences need to be paid," Gabriel said.
Gabriel said the embezzlement caused a near financial collapse for the Grayling Little League.
"We almost lost the program, but a few volunteers got together and fought to keep this program going," Gabriel said.
Crawford County Prosecutor Everette "Trey" Ayers said the embezzlement resulted in some equipment not being purchased for the Grayling Little League. In addition, scholarships were not given out to families who have financial hardships to allow their children to participate in the program.
"Some families could not play," Ayers said.
Dawn LaCasse, Enos' defense attorney, sought to have the sentencing adjourned because she was given some information just before the hearing.
LaCasse argued that the crimes that Enos plead to involved three entities and resulted in separate amounts of restitution being applied to each crime.
Although LaCasse said she did not want to belittle the individuals involved with the organizations, she argued that she did not believe psychological injury could be applied to the three entities who were victims when considering the sentencing guidelines.
"I don't think the prosecutor can come in and add additional victims," LaCasse said.
Former school VP sentenced in embezzlement in Philadelphia
A former vice president of operations at a postsecondary school with campuses in Cherry Hill and Philadelphia will spend two years in prison for embezzling more than a half-million dollars from the for-profit institution, federal prosecutors said.
Diane Bowler, 53, of Sewell, was sentenced Monday in federal court in Camden to 24 months in prison for stealing from Prism Career Institute between 2008 and 2011, according to the U.S. Attorney's Office in New Jersey. The school offers training in clerical and health-related services.
Bowler also was sentenced to three years of supervised release and ordered to pay $551,596 in restitution - the amount she stole from Prism, said Matthew Reilly, a spokesman for the U.S. Attorney's Office. A Prism spokeswoman declined to comment Monday. Bowler's lawyer, Richard Sparaco, did not return a phone message
Probing Ohio school board member says concentrated power, secrecy led to massive embezzlement
FROM: http://eagnews.org
Embezzlement doesn’t happen by accident, particularly in a small school district where many people have been working together for years.
It’s fostered by a culture of concentrated power, secrecy and financial negligence, sometimes dating back years.
And it becomes more likely when concerned school board members are kept out of the loop and told to mind their own business, even though they are elected to help govern the school district.
That’s what happened in Ohio’s Cuyahoga Heights school district, according to Dr. Holly Thacker, a school board member who continued to ask questions until she managed to uncover a massive financial rip-off of the district.
The Ohio state auditor recently accused Joseph Palazzo, the district’s former technology director, of cheating the district out of $4.2 million by improperly approving payments to seven technology vendors that were operated by his friends and relatives.
Some products and services that were purchased by the district were never delivered, according to the state auditor. Some were delivered but were apparently re-sold to or given other people who had no connection to the district.
Criminal charges have yet to be filed, but the FBI is investigating the situation and the school board recently voted to sue in an attempt to recover the missing funds.
Thacker says the entire situation might have been discovered much sooner, or perhaps prevented altogether, if district administrators and school board members had been more attentive and open to inquiries.
“I think it’s easy to steal money from public schools when everybody is so close – teachers, board members, the union, administrators,” Thacker told EAGnews. “If you don’t have checks and balances, that isn’t a good thing.”
Culture of complicity?
The Cuyahoga Heights school district is a small, prosperous district in the middle of Cuyahoga County, not far from Cleveland. It had an annual budget of about $14.6 million in 2011.
Thacker, the mother of three students in the district, got her first taste of local school politics when her husband served on the Cuyahoga Heights school board between 2002 and 2006.
Thacker was elected to the board in 2010 and soon became concerned about financial accountability. She noted that many significant expenditures were made without prior board approval.
But she said nobody seemed receptive to her questions or concerns.
At one point she said the former superintendent, Peter Guerrera, told her she was not allowed to contact the school’s attorney, and the district treasurer told her other board members “wouldn’t like her” if she contacted the attorney. She said her fellow board members, many of them longtime veterans, acted as though she was sticking her nose into business that shouldn’t concern her.
She said few officials responded positively when her husband called for a complete material audit of the district at a board finance meeting in November 2010.
By December 2010, Thacker said she was so frustrated with the lack of information that she refused to vote yes on any district expenditures.
“When I joined the board, the former superintendent suggested I join the dress code committee, but I asked for an appointment to the financial committee,” Thacker said. “I knew we were going to have to go for a (property tax) levy soon, and I was disappointed that there had not been regular finance committee meetings in more than four years.
“I felt I wasn’t getting the information pertaining to financial questions I had. Bills were being paid without financial approval or scrutiny. I was told that schools don’t budget like businesses.
“I sat in executive meetings and had school attorneys, administrators and board members scream at me because I was asking questions. It looked to me like a culture of complicity, with so many people related to each other, or friends with each other, in a small community.”
Demanding the truth
Thacker said she first noticed a seemingly large amount of money being spent for technology purposes in the summer of 2010. She and her husband did some research and found very little information online regarding some of the technology vendors receiving money from the district.
That November she noticed a small entry in the school auditor’s report referring to “excessive expenditures” for technology products and services. She said she demanded more information but received few responses from fellow board members or the administration.
She also became concerned about the longtime presence of three supposed volunteers working in the district technology office. She later found out there were being paid by some of the vendors that were doing business with Palazzo.
“I began asking questions and I was told technology costs a lot of money,” Thacker said. “I wondered why we were spending so much money on laptops when we don’t use laptops anymore. I noted the name of one of the vendors – Laptops and More – and I was told the expenses had to do with the ‘more’ part.”
In January, 2011 Thacker authored two new policies that were adopted by the school board. One required all expenditures over $5,000 to have prior approval of the board. The other required school personnel making purchases to disclose any personal connections they may have with vendors.
Palazzo responded by disclosing that two of the vendors receiving school district money were owned by his brother.
“Once that happened, I was increasingly concerned,” Thacker said.
Thacker contacted the state auditor’s office and reported what she knew. Another school board member apparently went to the interim superintendent, who took over when Guerrera retired in December, and told her about the situation.
Thacker also became worried about the safety of her family and contacted the county sheriff. Thacker and her husband met with the sheriff in early February, shared their information, and were told to keep quiet.
Discovering huge losses
In late February, 2011 the school board decided to pull a scheduled property tax millage proposal off the school ballot due to “financial irregularities.” They also voted to suspend Palazzo, who resigned shortly afterward.
About the same time federal, state and local authorities started a criminal investigation, and the state auditor started a special technology criminal audit of the district. The state ordered the school board to pay for that audit at a cost expected to be in the $40,000 to $60,000 range, Thacker said.
School board members were not briefed on the results of the criminal audit until October 8 of this year. On Oct. 16 state Auditor Dave Yost held a press conference to disclose the findings of the audit to the public.
In short, the audit found 436 payments made by the district to seven companies owned by relatives or friends of Palazzo between July 1, 2007 and Feb. 22, 2011 for a total of $3,844,155. The district received no apparent goods or services for the payments.
The audit also identified 179 payments totaling $336,495 for goods and services which were “diverted for purposes unrelated to district operations.”
Kickbacks may also have been involved. The audit uncovered 347 payments totaling $1,308,194 from four of the vendors to Palazzo, after district payments were made to those companies.
The Federal Bureau of Investigation continues to look into the situation, but no arrests have been made or charges filed.
School boards should be the boss
The situation has left the small Cuyahoga Heights district in a state of alarm, according to Thacker.
Last week the school board voted to file a lawsuit in an attempt to recover the lost funds from Palazzo.
“People are angry, outraged and calling for longtime board members to resign,” she said. “Everybody is pointing fingers at everybody. People need to have all the facts. Things need to be done transparently.”
Amazingly that idea has not sunk in with everybody in the district, Thacker said.
Despite the huge financial losses and lack of accountability, several district officials have either ignored the policy requiring board pre-approval of expenditures of more than $5,000, or called for the policy to be dumped, according to Thacker.
“Are you kidding me?” Thacker said. “That’s the culture. But when you get a lot of power and a lot of money together it’s not a good combination.”
Thacker has a real problem with the traditional definition of a school board member.
While board members are elected by citizens to govern school districts, that’s usually not what they do. Instead they are told that their job is to set “broad policy,” then step back and let the “expert” administrators manage the districts with little interference or oversight.
The apparent embezzlement at Cuyahoga Heights demonstrates how that traditional policy can lead to big problems, according to Thacker.
“I think there is a big, huge concern when nobody is looking at what’s going on,” she said. “It’s ripe for problems. I remember sitting there in utter disbelief at the retirement party for our former superintendent. One board member was gushing about how wonderful it was to work for him. He didn’t work for him. The superintendent works for the board.
“Boards have to be involved. You can’t take things at face value, and you can’t be deterred when you’re accused of micromanaging. The board should be the boss. There has to be checks and balances.”
Embezzlement doesn’t happen by accident, particularly in a small school district where many people have been working together for years.
It’s fostered by a culture of concentrated power, secrecy and financial negligence, sometimes dating back years.
And it becomes more likely when concerned school board members are kept out of the loop and told to mind their own business, even though they are elected to help govern the school district.
That’s what happened in Ohio’s Cuyahoga Heights school district, according to Dr. Holly Thacker, a school board member who continued to ask questions until she managed to uncover a massive financial rip-off of the district.
The Ohio state auditor recently accused Joseph Palazzo, the district’s former technology director, of cheating the district out of $4.2 million by improperly approving payments to seven technology vendors that were operated by his friends and relatives.
Some products and services that were purchased by the district were never delivered, according to the state auditor. Some were delivered but were apparently re-sold to or given other people who had no connection to the district.
Criminal charges have yet to be filed, but the FBI is investigating the situation and the school board recently voted to sue in an attempt to recover the missing funds.
Thacker says the entire situation might have been discovered much sooner, or perhaps prevented altogether, if district administrators and school board members had been more attentive and open to inquiries.
“I think it’s easy to steal money from public schools when everybody is so close – teachers, board members, the union, administrators,” Thacker told EAGnews. “If you don’t have checks and balances, that isn’t a good thing.”
Culture of complicity?
The Cuyahoga Heights school district is a small, prosperous district in the middle of Cuyahoga County, not far from Cleveland. It had an annual budget of about $14.6 million in 2011.
Thacker, the mother of three students in the district, got her first taste of local school politics when her husband served on the Cuyahoga Heights school board between 2002 and 2006.
Thacker was elected to the board in 2010 and soon became concerned about financial accountability. She noted that many significant expenditures were made without prior board approval.
But she said nobody seemed receptive to her questions or concerns.
At one point she said the former superintendent, Peter Guerrera, told her she was not allowed to contact the school’s attorney, and the district treasurer told her other board members “wouldn’t like her” if she contacted the attorney. She said her fellow board members, many of them longtime veterans, acted as though she was sticking her nose into business that shouldn’t concern her.
She said few officials responded positively when her husband called for a complete material audit of the district at a board finance meeting in November 2010.
By December 2010, Thacker said she was so frustrated with the lack of information that she refused to vote yes on any district expenditures.
“When I joined the board, the former superintendent suggested I join the dress code committee, but I asked for an appointment to the financial committee,” Thacker said. “I knew we were going to have to go for a (property tax) levy soon, and I was disappointed that there had not been regular finance committee meetings in more than four years.
“I felt I wasn’t getting the information pertaining to financial questions I had. Bills were being paid without financial approval or scrutiny. I was told that schools don’t budget like businesses.
“I sat in executive meetings and had school attorneys, administrators and board members scream at me because I was asking questions. It looked to me like a culture of complicity, with so many people related to each other, or friends with each other, in a small community.”
Demanding the truth
Thacker said she first noticed a seemingly large amount of money being spent for technology purposes in the summer of 2010. She and her husband did some research and found very little information online regarding some of the technology vendors receiving money from the district.
That November she noticed a small entry in the school auditor’s report referring to “excessive expenditures” for technology products and services. She said she demanded more information but received few responses from fellow board members or the administration.
She also became concerned about the longtime presence of three supposed volunteers working in the district technology office. She later found out there were being paid by some of the vendors that were doing business with Palazzo.
“I began asking questions and I was told technology costs a lot of money,” Thacker said. “I wondered why we were spending so much money on laptops when we don’t use laptops anymore. I noted the name of one of the vendors – Laptops and More – and I was told the expenses had to do with the ‘more’ part.”
In January, 2011 Thacker authored two new policies that were adopted by the school board. One required all expenditures over $5,000 to have prior approval of the board. The other required school personnel making purchases to disclose any personal connections they may have with vendors.
Palazzo responded by disclosing that two of the vendors receiving school district money were owned by his brother.
“Once that happened, I was increasingly concerned,” Thacker said.
Thacker contacted the state auditor’s office and reported what she knew. Another school board member apparently went to the interim superintendent, who took over when Guerrera retired in December, and told her about the situation.
Thacker also became worried about the safety of her family and contacted the county sheriff. Thacker and her husband met with the sheriff in early February, shared their information, and were told to keep quiet.
Discovering huge losses
In late February, 2011 the school board decided to pull a scheduled property tax millage proposal off the school ballot due to “financial irregularities.” They also voted to suspend Palazzo, who resigned shortly afterward.
About the same time federal, state and local authorities started a criminal investigation, and the state auditor started a special technology criminal audit of the district. The state ordered the school board to pay for that audit at a cost expected to be in the $40,000 to $60,000 range, Thacker said.
School board members were not briefed on the results of the criminal audit until October 8 of this year. On Oct. 16 state Auditor Dave Yost held a press conference to disclose the findings of the audit to the public.
In short, the audit found 436 payments made by the district to seven companies owned by relatives or friends of Palazzo between July 1, 2007 and Feb. 22, 2011 for a total of $3,844,155. The district received no apparent goods or services for the payments.
The audit also identified 179 payments totaling $336,495 for goods and services which were “diverted for purposes unrelated to district operations.”
Kickbacks may also have been involved. The audit uncovered 347 payments totaling $1,308,194 from four of the vendors to Palazzo, after district payments were made to those companies.
The Federal Bureau of Investigation continues to look into the situation, but no arrests have been made or charges filed.
School boards should be the boss
The situation has left the small Cuyahoga Heights district in a state of alarm, according to Thacker.
Last week the school board voted to file a lawsuit in an attempt to recover the lost funds from Palazzo.
“People are angry, outraged and calling for longtime board members to resign,” she said. “Everybody is pointing fingers at everybody. People need to have all the facts. Things need to be done transparently.”
Amazingly that idea has not sunk in with everybody in the district, Thacker said.
Despite the huge financial losses and lack of accountability, several district officials have either ignored the policy requiring board pre-approval of expenditures of more than $5,000, or called for the policy to be dumped, according to Thacker.
“Are you kidding me?” Thacker said. “That’s the culture. But when you get a lot of power and a lot of money together it’s not a good combination.”
Thacker has a real problem with the traditional definition of a school board member.
While board members are elected by citizens to govern school districts, that’s usually not what they do. Instead they are told that their job is to set “broad policy,” then step back and let the “expert” administrators manage the districts with little interference or oversight.
The apparent embezzlement at Cuyahoga Heights demonstrates how that traditional policy can lead to big problems, according to Thacker.
“I think there is a big, huge concern when nobody is looking at what’s going on,” she said. “It’s ripe for problems. I remember sitting there in utter disbelief at the retirement party for our former superintendent. One board member was gushing about how wonderful it was to work for him. He didn’t work for him. The superintendent works for the board.
“Boards have to be involved. You can’t take things at face value, and you can’t be deterred when you’re accused of micromanaging. The board should be the boss. There has to be checks and balances.”
Monday, March 18, 2013
Embezzlement: A serious issue too few take seriously
As investigators continue to aggressively pursue allegations of business embezzlement in Sonoma County, regional fraud experts warn that many North Bay companies and nonprofits still lack the basic internal practices needed to catch and prevent those crimes
While cases involve a variety of schemes along what Sonoma County District Attorney Jill Ravitch called a “continuum of sophistication,” sometimes simple controls are adequate to prevent theft, according to Ms. Ravitch and experts in accounting and finance. Financial oversight should be considered a standard business practice and implemented by organizations of all sizes in the North Bay and beyond, fraud prevention experts said.
“Wherever there’s money, there’s vulnerability,” Ms. Ravitch said.
The problem is not unique to the North Bay. Nearly half of U.S. companies with fewer than 100 employees lacked an anonymous tip line in 2011, considered the single most effective tool for discovering embezzlement and required for publicly traded companies, according a 2012 study of global fraud by the Association of Certified Fraud Examiners.
Small organizations consistently lagged behind larger companies in preventative measures, and those cases also involved the largest median losses of $147,000, according to the trade certification group. Losses up to $1 million were reported in 20 percent of cases, and a typical organization loses 5 percent of its revenue annually to fraud, according to the report.
Regional fraud experts said that those risks are particularly acute in the North Bay, a region known for its density of small businesses and nonprofits. In pursuit of efficiency at a time of slim margins, owners and managers often overextend the access of those with control of the organization’s accounts and essentially empower those employees to commit fraud.
“When you put all your eggs in one basket, you better watch that basket,” said James Perez, partner at the accounting firm Pisenti & Brinker and accounting instructor at Sonoma State University.
As in many of the recent cases prosecuted by the District Attorney’s Office, it can be months or even years before employers catch employees in the act of stealing company funds. Without continuing oversight, trusted employees can write checks to themselves on company accounts, set up false vendors and otherwise develop methods to siphon funds from their employer, according to regional experts.
Thefts have added up to millions for Sonoma County organizations in recent years. In 2012, judges issued sentences for jail time and restitution in cases including a $1.19 million embezzlement from Petaluma’s Bibbero Systems, $700,000 from Santa Rosa’s Center for Spiritual Living, $398,000 from the Kid Street Learning Center, $390,000 from the Sonoma Golf Club and $125,000 from the Oakmont Golf Club. Prosecutors are also pursuing a number of new cases in 2013.
“We’re not talking about $20,000 here. We’re talking about hundreds of thousands of dollars, and the potential failure of the business,” Mr. Perez said.
Finding motive — ‘the fraud triangle’
While the nature of each crime varies, individuals are frequently pushed to act by a convergence of personal circumstances, rationalization and opportunity that fraud experts refer to as “The Fraud Triangle.” Most of those individuals have no criminal record and good compensation, ostensibly at low-risk for criminal behavior, Ms. Ravitch said.
Yet with sufficient access to company accounts and some sort of justification, sudden financial pressure can be enough to instigate criminal behavior that adds up to big losses over time, said Jim Petray, partner in the North Bay office of BPM, Accountants & Consultants
“Generally, it’s a long-term and trusted employee,” he said. “That’s why, when these things happen, it cuts so deep.”
Removing of any of those three components can ward off the motivation to commit fraud, experts said. Yet while many of the internal controls that diminish opportunity are relatively simple, like regular owner review of bank statements and payroll, many still fail to implement them, Mr. Petray said.
“In my experience over 37 years, less than half of my clients take proactive measures in this department,” he said.
Regardless of an organization’s level of preparedness, Mr. Petray advised owners and managers to watch for classic warning signs in their employees. Resistance to taking vacations could indicate a need to keep constant watch over the books, and many cases will manifest themselves in an employee living well beyond their means, he said.
It was during a business manager’s Italian vacation that Sonoma Golf Club uncovered the embezzlement of $390,000 over two-and-a-half years, according to the District Attorney’s Office. What started as a red flag in payroll lead to the discovery that the 53-year-old business manager had been increasing her own pay rate without authorization and using company accounts to pay taxes and other expenses, according to the District Attorney.
“We put people in these positions because we like them. But circumstances can change and create a motive,” Mr. Perez said.
Larger organizations are naturally more complex than small companies, with a greater number of entry points for fraud, experts said. Yet across the board, companies generally experience embezzlement in one of three areas: fraudulent recipients of accounts payable, manipulation of employee payroll and “skimming” of sales. While the methods vary, simple controls remain an effective catch-all in most cases.
In the case of the Oakmont Golf Club, the 31-year-old manager worked within the company’s retail accounting system to cover up the theft of products he would later sell, all while giving the appearance of increased business at the shop, according to the District Attorney. Yet while the method was elaborate, Ms. Ravitch noted that it was another manager’s questioning of a single reversed transaction that ultimately uncovered the 14-month-old issue.
“If the owner-manager keeps an eye on any point where funds are going out, you can catch a lot of fraud,” said Eric Miles, partner in the Business Risk Services group at Moss Adams. “A lot of these cases are pretty simple theft — it’s just that nobody was watching.”
Basic measures include a requirement for two signatures on checks above a certain size, a copy of bank statements sent to an owner’s personal address, periodic review of payroll, mandatory vacations for employees, surprise audits and an established whistleblower protection policy, he said. Other strategies include proactive assistance to employees with financial hardship, a strong corporate culture of accountability, specialized insurance products and mandatory ethics training.
For small nonprofit entities, oversight from a committed board of directors — in particular, a treasurer who works closely with a bookkeeper — can be a powerful line of defense against fraud, said James Andersen, a pioneering expert in forensic accounting in the North Bay and partner at the forensics-focused accounting firm Hemming Morse.
“Where the nonprofits are particularly vulnerable is because nonprofits often have boards of directors that are basically volunteers. Since they are volunteer positions, they aren’t spending the hardcore time drilling down into the details and keeping an eye on things,” he said. “Weak boards kill nonprofits.”
Lenders as another safeguard
Lenders can provide another safeguard, with an increasing array of anti-fraud programs available across the commercial lending industry. While banks and credit unions have long since left the era when staff would manually process every incoming check, electronic banking has made it much simpler for business owners to monitor transactions within their accounts and for lenders to warn of unusual spending patterns, said experts in the field.
“Maybe if you’re the business owner, you say, ‘My job is to be out there talking to people.’ But you should be checking in once in a while,” said Brad Hunter, senior vice president in charge of electronic banking at Santa Rosa’s Exchange Bank. “Some of these things that happen are really blatant. With online banking, you can pull up images of checks. Look at a few of them, and ask your bookkeeper about them.”
Business owners can also pursue additional protections through their lender. “Positive pay,” a program offered by a number of lenders, will create a record of checks when they are issued and inform owners of any changes during deposit. Owners and managers can also ask to personally approve any transactions above a certain dollar amount, whether over the phone or through an increasing number of mobile and electronic banking programs, said Linda Bertauche, chief operating officer and head of risk management at Santa Rosa’s Summit State Bank.
“The time and effort put into would certainly reap rewards if it is discovered that there have been fraudulent charges,” she said.
While check fraud has existed “as long as there were checks,” Lori Gates, senior vice president of treasury management at the North Coast commercial banking office for Wells Fargo, said the electronic age has accelerated the emergence of new techniques. Employees are not the only risk — banks now either mandate or provide a number of programs to monitor for the intrusion of computer hackers as well.
After a former business manager used falsified records and forged checks to siphon $700,000 from Santa Rosa’s Center for Spiritual Living over six years, staff and members have responded positively to the implementation of new financial oversight, said Jan Davis, chief operating officer.
“It’s not making sure our staff isn’t doing something wrong. It’s being good stewards of the contributions from our community,” she said.
Ms. Davis noted that she is not an accountant by trade, but drew on her experience in budgeting for the wine industry to implement clear record keeping practices. The church now conducts regular audits and has transitioned to a culture of greater financial transparency to a membership of approximately 675.
For organizations about to revamp their processes, she recommended a phased implementation of new controls.
“Since we’ve done it in that way, we’ve had a really positive buy-in from staff,” she said.
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