First, how much investments could a firm manage or maintain to not miss $10.4 million dollars?  I am left wondering how this amount was not missed for over three years, and how controls that I would expect implemented by any investment firm did not prevent or detect this level of theft for such a long period.  Cases like this one makes me wonder just how many of these thefts are occurring today but have yet to be discovered, much like when I wrote something similar a year ago when this particular case was on-going and yet to be discovered.  Is also makes me wonder how many individuals who gamble regularly support their hobby or addiction with stolen funds.

Former company official admits embezzling $10.4M from northern NJ investment firm

NEWARK, N.J. — Federal prosecutors say a New Jersey man has admitted embezzling more than $10.4 million from the investment management firm where he served as chief financial officer.

Newmark’s lawyer, Michael B. Himmel, said his client has a “significant” gambling problem.

Thirty-nine-year-old David Newmark of Montville surrendered to authorities Wednesday and pleaded guilty to wire fraud and tax evasion charges. He faces up to 25 years in prison when he’s sentenced April 24 and also will have to make full restitution. Newmark stole the money from Short Hills-based Columbus Hill Capital Management. Prosecutors say he created a phony account to collect fraudulent deposits between February 2008 and March 2011 and diverted the funds to bank accounts he controlled.  Newmark’s lawyer, Michael B. Himmel, said his client has a “significant” gambling problem.

Click to read the article at therepublic.com

Another pattern I have been tracking is that no contexts seem to be immune.  Individuals with access and opportunity seem to be stealing everywhere possible.  I’m not saying everyone is stealing, because that is certainly not the case.  But I am saying a significant risk exists for theft or embezzlement within every business, entity, government agency, program, club, group, and every other type of organization that maintains funds, regardless of the nature, size and context of each potential victim organization.

I truly believe employee behavior is a leading indicator, often detected long before evidence of the actual diversion of funds has materialized.  Living beyond ones means seems to come up in many of the cases.  Know your employees, and for anyone who is a member of any social club, sports program or any other member organization, know who handles your finances and what controls are in place to safeguard your funds.

Below is a small sampling of Google Alerts received today alone:

Woman jailed for embezzling youth soccer funds (over $200,000)

http://www.vancouversun.com/business/Woman+jailed+embezzling+youth+soccer+funds/6006470/story.html

A local judge accused of embezzling court funds and other misdeeds could be removed from the bench

http://www.wxyz.com/dpp/news/a-local-judge-accused-of-embezzling-court-funds-and-other-misdeeds-must-answer-for-her-actions

Sentencing for Ira town clerk who admitted embezzling

http://www.wcax.com/story/16536416/sentencing-for-vt-clerk-who-admitted-embezzling

Former Tenderloin Housing Clinic Employee Sentenced For Embezzlement

http://sfappeal.com/news/2012/01/former-tenderloin-housing-clinic-employee-sentenced-for-embezzlement.php

A Kent County minister accused of embezzlement is due in court today.

http://www.wwmt.com/news/embezzlement-1400637-accused-minister.html
Former Shelby Schools superintendent charged with embezzlement

http://www.ludingtondailynews.com/news/63161-former-shelby-schools-superintendent-charged-with-embezzlement

A simple Google News search using key words “embezzlement ” and “medical” led me to many recent articles relating to individuals who crossed the line and were caught stealing from their practices.  The bookkeeper for one practice embezzled over $2 million, a practice manager embezzled nearly a half million, and several others whose thefts reached large six-figure amounts.

Last night’s “treasure” find – http://www.stealfromdoc.com/.

Although I am online most every night, as I have been my entire career, I had never landed on this site.  The site is sponsored and maintained by a practicing physician, Dr. Don Elton, who was victimized through an employee embezzlement.   Per Dr. Elton’s site: “I am a Pulmonary and Critical Care physician practicing in South Carolina. Like most physicians, I have been a victim of employee theft. None of us received any training in accounting or prevention and detection of employee embezzlement in school so I sought to write a concise book to fill in the knowledge gaps most physicians have in this very important area.”

Dr. Elton’s site is dedicated to articles, stories and information relating to fraud and embezzlement directed to the medical community.  In my experience, medical enviroments continue to be the number one victimized organization when it comes to employees stealing, and more resources like this site are needed to help change that statistic.

Beyond a physician, financial crime victim and blogger, Dr. Elton is also a published author.  Dr. Elton’s book, “How to Steal from a Medical Practice“,  targets assisting fellow practitioners, helping them minimize their risk of becoming a victim to employee theft and embezzlement.

If you are a medical provider who owns, manages or otherwise are responsible for the financial aspects of your practice, regardless of size, specialty or modality, you should bookmark Dr. Elton’s blog, track back regularly, and order a copy of his book.  He provides great advice, doctor to doctor, to minimize your chances of becoming a victim at the hands of one of your employees.

http://www.stealfromdoc.com/

Believe it or not, although at my age I have had much opportunity, I had never watched the Christmas classic “It’s a Wonderful Life” staring Jimmy Stewart until the other night.

Much to my surprise the movie centered around Stewart working at a bank, and $8,000 of missing money.  Customer Potter actually stole the funds, resulting in the loss.  Turning to Potter out of desperation to obtain a loan to make the funds whole, Potter in turn never mentions he stole the funds, and rather calls the prosecutor and authorities to have Stewart arrested for embezzling the funds from the bank.

I won’t share more of the details, as I don’t want to spoil it for anyone who has not seen the movie.  It is a “must see” film.

I just found it interesting that when I took a moment away from the daily fraud grind, and sat down to finally watch this classic, that it involved embezzlement.

Here’s a link to a trailer for the movie via Youtube:

In this latest case capturing headlines due to the victim organization being the San Francisco Giants, much can be learned from what little has been publicized about the breaking case thus far.

One particularly interesting detail is that the embezzlement was not known by the organization, nor was it detected by any of the internal controls one would think would be implemented within such an organization.  Rather, as is common in so many cases, the suspect did something outside of their employment that triggered the discovery.  One can more than speculate that had it not been for the suspect triggering her own scheme, the organization may have never learned of her theft (also very common).

In this case a letter written by the suspect supporting a loan application, sent by the potential lender to the employer (Giants) to be validated, is reported to be responsible for identifying the thefts.  For the San Francisco Giants, the drastic change in the lending industry in response to past lending fraud, requiring validation and corroboration of applicant-provided information, may have saved the organization from an even larger loss.

Where were the internal controls?

Who authorizes, processes, reviews, reconciles and records the payroll at this and every organization?  Fraudulent payroll schemes are common and should be easily prevented and/or detected before reaching such large amounts as with this case involving over $1.5 million.  At a minimum, the payroll details of those who have access to payroll should be scrutinized regularly to ensure such a scheme could not occur for long, a recommendation I have been making for twenty-plus years.  This individual is reported to have had an annual salary of $80,000.

Here’s a link to one of the several articles:

http://abclocal.go.com/kgo/story?section=news/iteam&id=8336001

I see the convenience of this app, being able to open your mail and make your deposits without ever leaving your house.  This could be especially handy during inclement weather, or if you have family members under your care who can’t be left alone (young children, older adults).

However, I would be remiss as a fraud examiner if I didn’t ponder how this new app could effect the incidents of fraud.  A real problem already exists with counterfeit, altered and stolen checks being cashed and/or deposited, along with multiple types of scams, including one whereby unsuspecting individuals are solicited to deposit checks, only to retain a portion and transmit the residual funds.  Often to perpetrate schemes involving counterfeit, altered or stolen checks, individuals (“mules”) are drafted to receive, cash or deposit the checks.  Once completed, the individuals forward the funds received to their “employer.”

The present schemes rely on tellers, clerks and other “live” individuals who handle cashing or depositing checks to look for signs indicating the checks may be counterfeit, altered or stolen.  With the release of the new app, there will be no teller interactions.

It will be interesting to see what safeguards are put into place with this new app, and also how long before this scheme is exploited once the app is released.

One day Paulson steals the bank vault’s contents (not exactly an embezzlement), and nervously escapes to France, constantly looking over his shoulder with fear of being caught.  He checks into a rooming house where another guest is busy fleecing fellow guests.  Paulson detects exactly what he is doing and is all over it – warning the guests to be cautious.  It seemed as if Henry would never lead the exciting life he dreamed with his stolen money, until he used some of the funds to help another guest (being extorted by the man).  For his next act of charity, he sponsored a party for orphans, something that clearly made him happy.  Shortly thereafter detectives catch up with him at the home, and he died from his ailment – having spent only a fraction of the stolen funds.

The book this movie was based upon was much more in tune to an embezzlement by a bank employee in 1947.  The story as told through Paulson was quite different from the storyline in the book.  However, it was a pleasure to travel back in time to the early 1950s, and watch how the bookkeeping was maintained for the bank.  The irony here was that there were checks and balances of their manually-maintained books and records – at the beginning and end of each day, one employee reviewed and reconciled the others’ work.  In each scene, the safe was always opened by two employees.

One could only wonder what would have happened if Paulson simply skimmed funds on a regular basis and forced the ledgers to balance.  It seemed clear the other employees as well as the manager trusted Henry, as he had been at the bank for so long (31 years).  Henry was given a poor prognosis and a short time to live, and in response took a large amount easily and quickly noticed by the manager.  Had Henry been given more time, I am confident he could have accomplished his theft, retired off to France, and the loss would have likely gone undetected.  That would have made it more consistent with a common embezzlement scheme by a trusted employee versus a robbery.

Here’s the URL to the movie:

http://www.imdb.com/title/tt0121241/

“A Catholic nun broke one of the Ten Commandments by embezzling $850,000 from a suburban New York City college and gambling it away in Atlantic City, according to federal prosecutors.”

I receive anywhere from six to twelve emails, every day, with anywhere from one to five story links within each email.  Many of the stories involve someone being arrested or charged with embezzlement, and the amounts range from thousands of dollars to multi-millions.  The stories also span the globe, with today’s links featuring an embezzlement by a revenue collector in the Fiji Islands, a low level official from China who fled to Canada allegedly with $14 million in embezzled funds, and two individuals in South Korea accused of embezzling $20.6 million.

Today’s links also included a Red Cross chapter, yet another volunteer fire department, and numerous bookkeepers and other individuals within companies here in the United States.

The statistic widely recognized in the fraud community is one in nine (1/9) fraud cases become publicly known, which means for every Google alert I receive, there are eight more that I should receive.  Google doesn’t know about those cases, and never will.  My experience has been this statistic is reasonably accurate.  Most cases are quietly settled and resolved.  Many victim organizations would prefer avoiding the negative publicity that could accompany the news article, and in some cases the publicity could pose a greater negative impact to the organization than the theft itself.  In many cases the embezzled funds are gone, eliminating any change of recovery or restitution from the suspect.  Insurance is the common source of recovery, and once paid, the claim is subrogated to the insurance company to recover from the suspect.  It is also common for the potential cost of the investigation to exceed the potential theft itself, bringing a potential investigation to a quick end.

Given the frequency of Google alerts I have received in the last six months, the question is this: is there more theft and stealing going on today, or are systems and procedures in place to better identify and detect these schemes when they occur, increasing the detection rate as opposed to the incident rate?

Here’s a link to Google News “embezzlement” for today:

http://news.google.com/news/search?aq=f&pz=1&cf=all&ned=us&hl=en&q=embezzlement

While thefts from these groups are not unusual, the amount of stories related to these groups in the last two weeks is alarming.

“LAKE OSWEGO — A woman who kept the books for a Lake Oswego parent group and two sports clubs was arrested Thursday on accusations of embezzlement.
Ranae Marlee Mason, 45, was accused on the belief she embezzled about $84,000. The baseball group noticed irregularities and audited their books, noting that $5,000 was missing. That led to the other two groups reviewing their accounts. The football league was missing $51,000 and the PTA $30,000.”

“Preston Junior High School Secretary, Idaho.  Allison Kay Hoth, 40, a secretary at Preston Junior High School was arrested and charged with theft for allegedly taking between $30,000 to $40,000 from one of the school accounts over the space of two years.”

“Magnolia Park PTO vows changes after embezzlement.  OCEAN SPRINGS, MS (WLOX) – The Magnolia Park Elementary Parent Teacher Organization in Ocean Springs could soon be changing the way it does business. That word comes a day after the PTO treasurer was arrested and charged with embezzling thousands of dollars from the organization.  Fitts, who volunteered as the PTO treasurer, is accused of taking $20,000 over a six month period.”

And yet another today -

Federal Way youth sports treasurer sentenced in embezzlement

“The former treasurer for three Federal Way youth sports leagues was sentenced today to 30 days in jail and must pay nearly $34,000 in restitution for embezzling funds from the leagues.  Colleen A. Wiley, 44, pleaded guilty Jan. 18 to first-degree theft. Prosecutors say Wiley wrote unauthorized checks and an unauthorized wire transfer totaling $33,967.20 – the restitution she must now pay.  According to court documents, the Federal Way woman stole the money from three leagues between August 2007 and January 2009. The three leagues involved are the Puget Sound Junior Football League, the Federal Way American Little League and Federal Way Junior Football Hawks.”

Here are the URL links to the referenced stories:

http://www.kgw.com/news/local/Oswego-PTA-sport-clubs-lose-84K-to-embezzeler-115211694.html

http://www.idahostatejournal.com/news/local/article_96229af8-2e2b-11e0-bb41-001cc4c03286.html

http://www.wlox.com/Global/story.asp?S=13959511

http://blog.thenewstribune.com/crime/2011/02/04/federal-way-youth-sports-treasurer-sentenced-in-embezzlement/