Business owners have personal role in deterring embezzlement

January 4, 2013 12:02:23 PM

Sarah Fowler - sfowler@cdispatch.com

 

Do desperate times call for desperate measures? At least one area accountant suggests there may be a link between tough economic conditions and a recent rash of embezzlement cases in the Golden Triangle. 

 

In September 2011, Bernice Lile, 62, was arrested for embezzling nearly $500,000 from her employer, thefts that started in 2004. She pleaded guilty and was sentenced to 10 years in prison in December.  

 

In July, Cynthia Jeanie Godbey, 46, a former accountant with Mississippi University for Women, was charged with embezzling $30,000 from the MUW Foundation. And in November, Beth Sykes Collum, 49, was arrested and charged with embezzlement after it was alleged that she stole a substantial amount from the Mississippi Horseshow Association where she served as treasurer. The investigation continues.  

 

Julie Melvin, a Certified Public Accountant at T.E. Lott & Co., said when the economy goes down, embezzlements go up.  

 

"Historically, you can see that trend when you start having recessions and economic crisises across the board that affect a lot of people," Melvin said. "With the recession, you have so many people affected, so many jobs lost, you have a lot of mitigating factors and a lot of increased pressure to maintain the status quo." 

 

Melvin, who specializes in fraud protection, said there are three factors that contribute to those who make the decision to embezzle: Opportunity, flawed rationalization and external pressure.  

 

Melvin said that most employers don't discover that their employees have been embezzling from them until two to three years after the fraud began.  

 

"There will seem to be a rash of embezzlements when they've actually been going on for quite some time," she said.  

 

Melvin added that most people have the misconception that an internal audit would catch any wrongdoing or potential theft.  

 

"Audits are not fraud protection and they are not designed for that," she said. "Most of the fraud that is committed is below what is considered material for financial statements audits," she said.  

 

Melvin gave an example of a company with $10 million in revenue with an employee stealing from petty cash.  

 

"If a clerk in petty cash is stealing $500 a month for 12 months, an audit is not going to catch that," she said. "To a company with $10 million in revenue, $6,000 is not material. 

 

"People have misconceptions about audits. Audits are designed to catch material misstatements in financial statements,"  

 

Melvin said she attended a seminar a couple of years ago on fraud and fraud protection and said she heard a statistic that took her by surprise.  

 

"Three of 10 employees are stealing from you," she said. "Three are not. The other four would if they could. The statistics are not on employer's side." 

 

Melvin said that there are simple ways employers can protects themselves against fraud. One of the simplest ways, she said, is to know your staff.  

 

"Small businesses are very trusting. It's not that guy that you hired two weeks ago who is stealing from you; it's that person in the back room who has been with you for eight or 10 years." 

 

 

 

Close to home 

 

For Jack Gordman, fraud committed by a veteran employee has the ring of truth. Lile, who had been working for Gordman for more than 10 years, was found to have embezzled $474,238 from his company, Gordman Insurance. 

 

Gordman described Lile not only as a trusted employee but a family friend. The two frequently went to lunch together and Lile would watch his children when Gordman brought them to the office after school. In fact, the two were so close that Lile would dog-sit for the Gordman family during vacations.  

 

It has been more than a year since Lile's crimes were first exposed, yet Gordman is still stunned by the crime.  

 

"This little 62-year-old woman would go to lunch with you, look you straight in the eye and would be stealing from you that very day," he said.  

 

According to Gordman, Lile stole the money by forging his signature on checks and manipulating Quick Books.  

 

"It started as a little and then it just got bigger and bigger and bigger," he said.  

 

Gordman was quick to point out that Lile embezzled from the company funds and did not cash premium checks mailed in by customers.  

 

He takes the responsibility for giving Lile too much leeway with the books and the accounting, but also questions the practice of the bank where she was cashing checks.  

 

"She was casing checks at Trustmark every day, every other day, in the amount of $800 to $9,000," he said. 

 

Gordman said the checks Lile was cashing were either made out to Lile, Gordman or his wife. 

 

Since Lile did not have an account with Trustmark, she had to put her fingerprint on every check she cashed.  

 

Gordman expressed frustration with the lack of communication between he and the bank.  

 

"I understand they can't be watching every transaction, but if someone is coming through cashing checks...they should have called me as a courtesy," he said.  

 

Gordman recommends other business owners be more watchful of their finances and never give one person too much control.  

 

"All business owners need to get copies of their checks and review them," he said. "I did not look at my checks. I'm at fault as much as anybody. 

 

"Quite frankly, I trusted Bernice." 

 

 

 

A watchful eye 

 

Melvin said that keeping a watchful eye on your books and your employees is a way to deter embezzlement.  

 

"Let them know you're watching them," she said. "People are much less likely to steal from you if there is a higher risk of them being caught. They don't want to go to jail." 

 

Melvin also said having your bank statements mailed to your CPA each month is another way to keep a close eye on your

Sarah Fowler covers crime, education and community related events for The Dispatch.