Local fraud cases serve as cautionary tale

Despite downward trend of white-collar crimes, employee theft remains a problem

Dr. Tammy Cleveland
Dr. Tammy Cleveland (above), owner of Columbia Veterinary Center in Vancouver, said a background check turned up nothing suspicious about Rae Ellyn Alexander, who was hired to do the office books and later pleaded guilty to theft.

Last month, Rae Ellyn Alexander, 50, pleaded guilty to stealing more than $41,000 from Columbia Veterinary Center in Vancouver where she had worked as the bookkeeper for 11 months. It is a fraud story that keeps repeating itself.

A retailer in Sandy, Ore. prosecuted a trusted business manager last year after discovering that the woman had stolen $70,000 from the family-owned business by juggling the books.

At Beaverton’s Washington Square, a store operator lost an estimated $100,000 in merchandise because of habitual theft by a dishonest employee.

“At heart, small business owners are entrepreneurial,” said Jennifer Murphy with Morones Analytics LLC in Portland. “The last thing they want to deal with is paperwork, but based on the cases we see, (business) owners need to embrace accounting.”

Instead, they put undue trust in a bookkeeper with little accountability, Murphy said.

“By just looking at actual monthly bank statements and credit card statements, a business owner will see what money is coming in and what money is going out,” she added. “Business owners who do this at least once a month, or more often, prevent thefts. They need to see the value in looking at these reports.”

Overall white-collar crime in the U.S. has been trending downward in the past five years as banks and credit card companies have improved their electronic security systems. But employee theft remains a problem, reports the Association of Certified Fraud Examiners.

The median loss from a case of “occupational fraud” was $150,000. If a single employee was doing the stealing, the median loss was $65,000. If a manager is the perpetrator, the median loss climbs to $173,000.

In the case of the Sandy, Ore. retailer, a “best friend” had been handling the books that included a high volume of online sales. While sitting just a few feet away from the owner in the office, the thief pilfered tens of thousands of dollars by altering deposit slips and adjusting monthly income statements.

A background check would have revealed that the woman had two prior fraud and theft convictions.

“No company or business is immune to this … and it’s always the person we trust the most who does the stealing,” said Tiffany Couch, Vancouver forensic accountant and author of “The Thief in Your Company,” a book about white collar crime prevention.

As past board chairman of the 75,000-member national ACFE, Couch often speaks before professional groups.

“I tell my audiences that if you asked the business owner on the day before a fraud is discovered to list his or her top three most trusted employees, the fraudster would be in the top three,” Couch said.

But business owners are so grateful to be free of the related accounting and paperwork that they “turn over the keys to the kingdom to one person,” she said. “That person will be tempted to steal. The saddest part is that this happens over and over.”

Couch recommends to business owners who don’t have time or don’t want to check the books each month that they hire or appoint someone else to take that role.

“For business owners, it’s the simple matter of asking themselves if this much money came in, do those numbers match the bank deposit,” she said.

For Portland accountant Jennifer Murphy, picking the right person to manage the books is extremely important.

“A background check is essential,” she said. “Even if your bookkeeper is a family member, you still must pay attention, look at the actual statements.”

In the case of the Vancouver vet clinic, owner and veterinarian Dr. Tammy Cleveland said a background check turned up nothing suspicious about Rae Ellyn Alexander who was hired to do the office books and later pleaded guilty to theft.

“The tight protocols we had in place prevented the embezzlement loss from being worse than it was,” Cleveland said.

Standard procedure required her office receptionist to prepare a deposit slip (with copy) to be included with an envelope of cash and checks from daily business activity. The checks and money were handed off to Alexander for deposit.

“Those records made it easy to know who was doing the stealing,” Cleveland said. “Sometimes small businesses like mine don’t catch this kind of theft for several years. We caught on in just 11 months.”

Since then, Cleveland, who has operated her small animal vet clinic since 1992, has further tightened her accounting procedures.

“I now have my CPA more involved in checking the books,” she said. “Rather than quarterly, we are doing it every month.”

Cleveland said that she felt compelled to report the theft from her business to the police and pursue the case, which required a court appearance.

She encourages other small business owners to prosecute fraudsters and not let their crimes go unreported without publicity.

“A lot of this kind of theft doesn’t get reported, so the guilty person may go on to steal from another unsuspecting small business owner like me,” she said.

In her book, forensic accountant Couch cites these red flags for spotting bookkeeping fraud: Bills not being paid, increased customer billing error complaints, one person with too much control over process, cash flow that does not match up with sales activity and “push back” from the person with control over the bookkeeping process.

“Denials and rationalizations allow problems to worsen and frauds to continue,” Couch said.

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