“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/

Complacency seems to have settled in within some organizations who had well designed and operational internal controls, but over time lost compliance and oversight, leading the the creation of opportunities for individuals to exploit the organization for personal gain.  Three themes I have echoed throughout all the years: implement practical internal controls applicable you your organization; ensure compliance to the controls implemented; and remain vigilant.

Here’s the link to the article:  http://www.cfo.com/article.cfm/14532812/c_14532784

Here is the link to CFO Magazine:  http://www.cfo.com

The box the article is referring to is on the job application completed by each candidate.  The question asks if the candidate has ever been convicted of a crime.

The law for Connecticut goes into effect October 1, 2010.  The article states several cities including New Haven, Hartford and Norwich has also adopted the “ban the box” change. It appears the law change will only effect state and city positions at this time.

The change does not prohibit an employer from asking the question, just not on the initial job application form.  The theory is that if the candidate has been successfully screened into a potential hiring position, during a face to face the candidate can offer details and explanations as to why they have the conviction, whereas a check box on the application could lead to a sure fire screening out of being potentially hired.

As a fraud examiner who has dealt with many individuals who have made poor decisions, permanently effecting their family, reputation and career, I encourage every employer to ensure themselves that this question regarding the potential trustworthiness of a future hire is included within every hiring process.  It’s not to say that anyone convicted of a crime should not be hired ever again, certainly that should not be the case.  However, every employer should have all the facts about a candidate’s background to allow for an informed hiring decision.

Even if coverage is maintained, I am confident most insureds are unaware of two common limitations within the coverage should there be the potential for a claim on the policy due to a potential theft of embezzlement.

First, the coverage often does not cover the acts or actions of an owner, partner, shareholder, or member (LLC) of the insured.  So, for an example of something we commonly see where an owner or partner steals funds and/or assets from the entity and the other owners or partners, the coverage would likely not be applicable to provide restitution to the entity for the diverted funds – as the perpetrator was an owner or partner. The theory is that the insured cannot steal from themselves.

Second, the coverage usually covers any employee (defined within the policy) commonly referred to as blanket coverage.  There is at least one exception to who would be covered – someone who has stolen in the past.  If there is any evidence that the insured knew, or should have known, that an employee had been dishonest in the past, whether in their present employment or in previous employments, the individual is not insurable, and therefore any actions by that individual are not recoverable.  Further, once potential dishonesty is discovered on the part of any employee, any loss beyond that date of discovery by the individual is generally not recoverable as well (the insured should have mitigated their loss and prevented any further theft).

This should have a direct impact on the screening and hiring process for most employers.  If a potential candidate will have access to funds and/or assets within their employment, and the candidate has an issue of dishonesty in the past, it is likely if the candidate is hired anyway and a subsequent loss is suffered due to the actions of that employee, there could be no recovery through the policy.  In investigating the claim, the insurance carrier will request copies of the individual’s personnel file as well as conduct their own investigation into the background of the suspected perpetrator.  Chances are they will identify the past dishonesty and deny the claim.

These are not newly added restrictions to recently issued policies.  In fact these limitations have existed for years.  However, due the growing scrutiny we have been experiencing by carriers reviewing and investigating dishonesty claims to determine if payment should be made on the claims, it is apparent many employers who maintain this coverage are unaware of these limitations.

Much less if any media attention has been devoted to the changes banks and lenders have been slowly making within the fine print regarding fraud perpetrated against your accounts.  In an earlier post I described how traditionally a customer would identify potential or actual fraudulent activity within their account, notify their financial institution, and after completing an affidavit for the bank, would have their account restored.  In recent years many banks enforced “timely” notifying the bank, but that generally meant within 30 days of receiving your latest statement.

With the transition underway for many institutions from paper statements to on-line access and electronic statements, less scrutiny is likely and fraudulent activity can be missed, possibly for months.  Less scrutiny or worse complacency could cost you going forward.

More alarming is a notice I just received on my line of credit.  This shows the fraud risk shift is expanding to all types of accounts, and not just traditional bank checking or savings accounts.  The policy change with this well-known national bank indicated I had days to notify the bank, or bear the risk of loss from the activity.

My advice again is to pay attention to what your banks, investment firms and lenders are sending you, and read them carefully, or you could end up being “surprised” when you alert the institution because something happened within one of your accounts.

The results – three screens of articles just from today’s publications on recent embezzlement cases, with a wide range of perpetrators and amounts involved.  The largest – a Wisconsin case – a recently discovered $4.5 million scheme by the vice president of finance at Koss.

Others worth noting – $330,000 in retirement funds stolen by the company’s president in New York; $3 million embezzled from a retired doctor in Michigan; $66,000 by a local hardware store bookkeeper in Providence; $45,000 by a physician office manager; $200,000 by union president in Manhattan; and $1 million by a finance clerk at a car dealership in Anaheim Hills – to name a few from today.  There was a church pastor who stole $18,000, a church bookkeeper who stole $90,000, and a former police chief who embezzled city funds to buy weapons for personal use.

Bear in mind that statistically somewhere around 1 in 9 cases ever appears in the media.  If that statistic is accurate, the thirty articles I read from today alone would equate to around 270 actual instances of embezzlement.  Staggering.

Regardless of the size and nature of any entity, fraud prevention and detection measures need to be implemented, and owners need to be vigilant – especially in these economically challenging times.

Joe Campana of the Madison Headlines Examiner said it best in his article regarding the Wisconsin $4.5 million theft -

“Regardless, business ethics, privacy, information security and fraud prevention should be on every businesses New Year to-do list.”

You can find his entire article at  http://www.examiner.com/x-26501-Madison-Headlines-Examiner~y2009m12d22-45-million-Wisconsin-employee-fraud-case-should-sound-business-alert