“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.”

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/

It seems incomprehensible how a scheme this large could have occurred and for so long.  The only explanation I can find without access to more of the case details is that this salon must of done a crazy level of business. I just never imagined a hair salon could generate such profits and cash flows to enable any individual to divert funds of this level without notice.

I liked the finer points of the article – such as the defendant’s own retained expert witness who showed that the defendant had been withdrawing funds long before she started putting funds back into the business.  It seems in most cases if the expert retained for the party identifies information that could be detrimental to the retaining party’s case, the expert is paid, released from the engagement and never disclosed in the matter.  Once again, without further details it is hard to determine what happened, but having your expert testify to facts to your detriment is usually not the desired goal of retaining an expert.   The expert has to remain objective, unbiased and uncover all the facts, supporting and refuting any allegations regardless of the party, but it is widely known that once you, the retained expert, uncover facts that could lead to the detriment of the retaining party’s case, continuing work and testifying is often no longer desired by counsel.

Here’s the URL to the full story:

http://www.mysanantonio.com/news/local_news/article/Jurors-return-guilty-verdict-in-hair-salon-984317.php

In my experience it has been difficult if not impossible to have a convicted embezzler see the inside of a jail cell.  If sentencing has included any jail time at all, it was common for the term to be very minimal, and frequently it was served at a half-way house or equivalent.  “We have limited space in our prisons, and we need that space for the violent criminals” is a common response I have heard, not that I could argue with that logic.

But still, I truly believe the level of theft and embezzlement is where it is today because individuals no longer fear the consequences of their actions, meaning they don’t perceive their chance of going to jail as being realistic if they steal large amounts of money from their employers or anyone else for that matter.  In sentencing I have experienced in my cases, I can’t argue with that either.

So, much to my surprise, when I saw that a woman was convicted and sentenced to twenty (20) years in jail for embezzling $408,500, an amount less than a million dollars, I took notice.  I have had individuals convicted of stealing well over a million dollars and receive a fraction of what Ms. Mattoon received.

I am by no means saying I believe someone who embezzles should not be appropriately punished for their actions, because I firmly believe there should be genuine consequences for stealing any amount of money.  I am seeking, though, some level of consistency in the sentences received by individuals convicted of embezzling, so that we can see the perceived and genuine risk of going to jail return, reducing the frequency of occurrence for victims of these crimes.

I am just trying to equate embezzling with twenty years.  Do you think someone who stole $408,500 should have received a prison sentence of twenty years?

Here’s the URL link to the story:

http://www.ktvn.com/Global/story.asp?S=13853352

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.

Stopping Employee Theft: What Every Employer Must Know.

R.W. Deckert      ISBN # 0-9662640-0-2

This book was not what I expected.  I thought this book would be another book written for the business owner audience on internal controls and segregation of duties to prevent employee thefts – and it does include these topics.

However, the author’s background included over twenty years working as an insurance claims adjuster for fidelity and employee dishonesty claims, and he spends the first half of the book educating the reader on what this coverage and complimentary policies entails.  From describing the different types of coverages and the importance of every employer to have such coverages, through what each type of coverage covers and doesn’t cover, he explains the entire claims process through final resolution of the claim, from receipt of payment through denial of your claim.  He also provides much advice on how to properly file your claim to ensure the maximum assurance of payment on the claim.

Often in employee theft and embezzlement cases the funds are spent or otherwise unrecoverable, and the insurance policy is the only means for recovery.  All too often even today victim employers fail to carry adequate to no coverage for the risk of employees stealing from the business, leaving no means for recovery.  This book is the best book I have ever found that details out the issues relating to this insurance coverage and the claims process leading towards recovery.  It will be a valuable resource in my library.