Scheme Type: Embezzlement
Loss Amount: $820,000
Duration: More than 18 Months
Red Flags: Inconsistencies in its 401(k) and its bank statements
Industry: Plumbing Company (family-owned)
Perpetrator’s Position: Office Employee
A family-owned plumbing company terminated its controller position when it was dealing with tough financial times. This termination led to increased job responsibilities and less oversight of the office administrator, who assumed many of the controller’s financial tasks for the company. This individual was never an authorized signer on the company’s bank accounts, however that didn’t stop this person from embezzling $820,000 from the company.
Over an 18-month period, this individual forged signatures on 190 checks, of which 163 checks were written to the individual or the individual’s family members. The remainder of the fraudulent checks were written to non-business-related third parties or to petty cash. This individual also used the company’s debit card for unauthorized personal purchases and ATM/cash withdrawals, as well as paid personal credits cards from the company’s bank accounts.
Covering the Tracks
In attempt to conceal this embezzlement, this individual:
This individual avoided overdrafts on the bank accounts and detection by the company by using these concealment methods. The scheme was eventually unraveled when the owner of the company had a financial planning meeting and found out that there hadn’t been a 401(k) contribution to his account for the past 16 months despite deductions to his paycheck.
Employee and Bank Sued
The company is now suing its former employee along with its bank for not reporting this suspicious activity. The company alleges the bank “…failed to exercise reasonable care in examining, evaluating, and applying due diligence to the investigation of the signature of the drawer, in paying and/or accepting checks for deposit, and in failing to monitor its accounts for suspicious and/or fraudulent activity.” The company alleges the bank failed to abide by its own internal policies and industry standards.
It will be interesting to see how the civil case will play out against the bank and who is determined to be ultimately liable: the bank, the company or both, for failing to exercise ordinary care towards preventing or detecting the schemes used by the former employee.
Preventing Fraud in Your Business
In this case and many other fraudulent disbursement schemes, the following recommendations will lead to prevention and/or earlier detection of fraud:
These easy-to-implement recommendations will assist your organization in preventing your money from going “down the drain.”
Click here for further details on the embezzlement and the allegations brought against the bank by the company.
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