More San Joaquin County embezzlers paying up

July 27, 2016

 

embezzlementSTOCKTON — The first clue Brookside Country Club got that it had a problem with its books came in the mail. It was June 2015, and a lien had been filed against the club for unpaid property taxes.

According to court documents, Board Chairman Wayne Silveria told police the club’s controller, Charlotte Hendry, had lied to the board about paying the taxes. Hendry resigned but before she left, she trained the new controller. That’s when more clues appeared.

The new controller, Lynn Fochs, told police Hendry failed to reconcile bank records to the general ledger or to account for the club’s petty cash and that sometimes Hendry would intercept some of the club’s mail.

The club conducted an internal audit that found $615,828.10 was missing. The club’s general manager noticed charges for music, sound equipment and air fare that were made on credit cards Hendry controlled. She suspected they were going to support Hendry’s second business.  She and her husband managed Elvis impersonators on the side.

Hendry was arrested at her new job in Las Vegas. She was brought back to San Joaquin County and is scheduled to continue her arraignment in July.

Embezzlements far from rare

Currently, the San Joaquin County District Attorney’s office has 10 embezzlement cases it is prosecuting, and there are outstanding warrants on several other suspects.

That number is typical, according to Deputy District Attorney Stephen Taylor. What is changing is the efficiency with which cases are prosecuted and that victims are seeing more money returned to them.

Taylor attributes those successes to two factors. First, he said District Attorney Tory Verber Salazar has organized her office so that attorneys stay on large embezzlement cases from beginning to end. In many other counties, embezzlement cases are prosecuted assembly-line style, Taylor said, with different attorneys handling different phases of the case.

Second, Taylor said in many cases, forensic accountants have already been working with victims to document losses. When the case gets to prosecutors, the evidence is already organized and the numbers are difficult to dispute.

The leading forensic accountant working with the DA is Steve Hoslett. He handled the Brookside case.

Forensic accountants approach a problem with finances differently than regular accountants might. Hoslett says it’s not his job to go through the books and make sure they’re in order. He’s just looking for signs of a crime.

“I don’t care about messy books. When I go look at an embezzlement case, I don’t go look at the accounting records because I don’t care,” Hoslett said. ” I look at, ‘Did all the money come in that was supposed to come in?’ And No. 2, I look at the bank statements and payroll and all that. I say, ‘When it goes out, did it go out appropriately?’”

In addition to the audit, Hoslett handles the insurance claims — if the victims carry embezzlement insurance. Brookside does, and its losses were covered for $500,000.

If the case goes to trial, Hoslett will also testify. That is a benefit to the victims, according to Taylor.

“By bringing in an outside accountant who’s just there for the embezzlement, the client protects themselves and their other employees from getting caught up in a huge soap opera,” Taylor said.

But very often, when forensic accountants are involved, cases never go to trial. Hoslett recently submitted a report to the DA’s office outlining the cases he’s worked on since 2009. All of the 28 cases were resolved without a trial.

Two cases were dismissed “in the interest of justice.” According to Hoslett’s report, those cases included significant restitution to the victims.

Taylor said that while he would prefer that people who embezzle six figures from their employers go to prison, sometimes it’s better for the victims if prosecutors  push for restitution instead.

“Getting money back is most important when you’re dealing with victims who are uninsured and elderly where this was their retirement fund,” said Taylor. “So it’s a tightrope I walk.”

In almost all cases, embezzlers have spent the money, so when they are offered a chance to make restitution, they offer up their retirement accounts or sell their houses.

What does an embezzler look like?

According to the 2013 Marquet Report on Embezzlement, 68 percent of employee theft was committed by people who held bookkeeping or finance positions. The age of the average embezzler is 43. Eighty-four percent work alone. Only 4 percent of perpetrators have criminal histories.

In 18.5 percent of cases, the embezzler is one partner stealing from the others, Hoslett said. Those tend to be the biggest cases with median losses pegged at $343,000.

Perhaps the most shocking figure, however, is that the average scheme runs more than four and a half years before it’s discovered.

According to court papers, investigators believe Hendry had been embezzling from Brookside since November 2008, nearly seven years before it was discovered.

Taylor said it is common that victims of embezzlement had trusted their bookkeepers, who are often not well trained, with too much access and too little oversight.

“I think there’s a trend here to use minimally experienced, trained and qualified staff, to not have any kind of audit oversight, certainly, and to wait for something to happen,” Taylor said. “But as long as the lights are on and the bills appear to be paid, then fine.”

Business owners sometimes have a sense that something is wrong with the money, but they chalk it up to the slow economy and resolve to work harder, Taylor said. It doesn’t occur to them that a trusted employee or partner is stealing from them.

When embezzlement is discovered, however, the effects can be devastating. Hoslett lays them out in presentations he gives to educate business owners and managers.

“Because the company has no money — because it’s all getting stolen — good people get laid off,” he said. “People don’t get raises. People don’t get the insurance benefits or they get them cut. There’s no contributions into the pension plans and retirement plans like there should be. So, all the money disappearing affects all the regular employees.”

Hoslett said that leads to low morale and productivity, and employees sometimes feel as if they’re working for a company with a stigma.

Trust but verify

In Hoslett’s presentations, he teaches business owners how to prevent embezzlement and how to spot it if it does occur.

According to fraud experts, embezzlement occurs when three criteria converge: motive, opportunity and rationalization.

Taylor said many of the defendants he encounters have drug, gambling or shopping problems, which provides the motive.

“The embezzlers are compulsive behavior people,” Taylor said.

Hoslett says it’s up to business owners to take away the opportunity.

“If you make it easy for people to steal from you, they will,” he says in his presentation.

He has a six-point plan businesses can use to prevent employee fraud. (See Six steps to fraud prevention). The plan is designed to make sure employees understand what fraud is and that the company is on the lookout for it.

“They can do it (embezzle), but they realize there’s somebody out there looking at what they’re going to do, so the opportunity that used to be wide open (is gone),” Hoslett said.

Hoslett says employees should never feel as if they won’t get caught, so he recommends periodic checks on different parts of the business’s finances. For example, in January, a business owner might go through transactions on company credit cards. In February, he might test bank disbursements for personal use.

Making those checks increases a business owner’s chance of discovering embezzlement before it’s gone on a long time, but it also is a signal to bookkeepers that they’re being watched.

Save

Leave a Reply

Your email address will not be published. Required fields are marked *