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4.6 Million Dollar Bookkeeper
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By Terry Simon

Picture a thief. What image does that bring to mind? A young man dressed in black skulking through the back alley with a load of valuables from your neighbor's vacant house? A devastatingly dashing couple working in tandem to liberate jewels and other valuables from the cramped bondage of a hotel wall safe? Or perhaps one of the "new" breed of CEOs and CFOs parading nightly across your television screen as they are escorted out of their businesses in handcuffs? Anyone picture a forty year old, slightly overweight woman who faithfully "keeps the books"? Did anyone imagine that it was their own "valued" employee? No? This lack of "imagination" could be costing you, and costing you plenty.

A Bellevue bookkeeper was recently arrested for allegedly stealing $4.6 million from her employer during her eight years of employment. According to Ed Mott of the Bellevue Police Department's fraud division, her embezzlement was discovered when the business owner asked a banker friend to review the company accounts. He quickly discovered that the woman had written herself more than 1,200 checks dating back to September 1993 when she was hired as a part-time accountant. She was able to take money undetected for so long because she was the company's sole accountant.

While the amount of this theft is unusual, the occurrence is not. According to the 2002 Report to the Nation conducted and prepared by the Association of Certified Fraud Examiners, an estimated 6% of revenues will be lost in 2002 as a result of occupational fraud and abuse. This translates to losses of approximately $600 billion, or about $4,500 per employee. If you think this problem is confined primarily to those large corporations where the employee feels anonymous and under appreciated, think again. Last year, the average fraud scheme cost small businesses a whopping $127,500 per occurrence compared to only $97,000 for the largest corporations. The sheer magnitude of such losses for small businesses make them particularly vulnerable, and in many cases leads directly to a business's demise. It is estimated that one-third of all business bankruptcies are a result of employees stealing from their employers.

The Association of Certified Fraud Examiners' definition of fraud includes corruption and fraudulent statements as well as "asset misappropriation," or theft. While the first two types of occupational fraud pose the greatest financial risk when they occur, it is theft that most concerns the small business owner for it accounts for 80% of all occupational fraud. And while many owners believe they diligently guard against theft by their employees, they tend to overlook their managers feeling that these are "valued" employees who have earned their trust. Yet studies show that while the median loss of frauds committed by employees runs at about $60,000 per incident, frauds committed by managers or executives push the loss to an astounding $250,000 per occurrence.

I. Proper Hiring Procedures
How do you guard against this type of loss? Many specialists point to the importance of good hiring practices. Joseph Wells, a certified fraud examiner and CPA, suggests that before hiring anyone, you should conduct a background check to find out as much as you can about the employee's previous experience with other employers and the law. This should include past employment verification, drug screening, credit, motor vehicle, criminal convictions and reference checks.
Dennis DeMey, coauthor of Don't Hire a Crook, says that if you only do three checks, they should be verifying a prospective employee's Social Security Number through a credit bureau such as Trans Union, Equifax or Experian, running a criminal history search and calling for references from prior employees. Each company must decide whether the time and expense of such checks are worth the return, but even the fairly simple and inexpensive reference check can be effective and is rarely used. Many companies have discounted this process because of the growing trend among prior employers of disclosing as little information as possible. But 32 states, including Washington, have now passed laws that provide immunity to employers for passing on legitimate information as long as it is without malice. Taking the time to make a few simple phone calls is worth the effort.


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