# Presentation: 055536

## Embezzlement 101

## Embezzlement

- The crime of stealing the funds or property of an employer, company, or government or misappropriating money or assets held in trust

## Bettendorf High School choir teacher found guilty of theft

- “The defendant clearly understood the funds in the Metro Fest bank account that she maintained were not for her personal use,” McKenrick wrote in his ruling. “The evidence of that understanding is patent from her disbursement of the remaining balance in the account in December 2006 to the participating schools and in her tender of a personal check for $200 for reimbursement of funds taken from the Metro Fest account admittedly for personal use.”
- Quad City Times

## Former exec admits fraud, tax charges

- A Wal-Mart Stores Inc. vice chairman who was a protégé of founder Sam Walton pleaded guilty to fraud and tax charges Tuesday, admitting that he stole money, gift cards and merchandise from the world’s largest retailer.Tom Coughlin, 57, pleaded guilty to five counts of wire fraud and one count of filing a false tax return. The charges carry a maximum penalty of 28 years in prison and a $1.35 million penalty, but prosecutors have likely recommended a reduced sentence as part of a plea bargain.The judge ordered a pre-sentencing report that will take up to four months to prepare.Wal-Mart lawyers referred Coughlin to federal prosecutors after discovering Coughlin had embezzled money from the company and used expense vouchers to buy products as varied as snakeskin boots, hunting trips and Bloody Mary mix. They estimated losses at up to $500,000.
- Quad City Times

## Q-C man, wife are indicted on fraud charges

- A federal grand jury has returned a 29-count indictment alleging conspiracy to commit mail fraud and mail fraud against a former Quad-City Times employee and his wife who are accused of embezzling more than $1 million from the company.
- Earl Beasley was building maintenance supervisor at the Times from August 1989 until Jan. 19, 2007. In charging information early in the case, the couple was accused of billing goods and services to the company from shell companies R&E Enterprises and Protech Co., owned by Julie Beasley.
- Quad City Times

## Bank employee gets supervision for 3 years

- A former employee of a Moline bank was given credit for time served and three years of supervised release Wednesday in federal court for embezzling $7,405 from the bank.Julia M. Brereton, age and address unavailable, embezzled the money from Southeast National Bank, 3535 Avenue of the Cities, on Aug. 29, 2006, court records state.She was sentenced in U.S. District Court, Central District of Illinois, Rock Island, after pleading guilty in February.Brereton received credit for 161 days served in custody.
- Quad City Times

## Postmaster charged with embezzlement

- A postmaster for the United States Postal Service has been charged with embezzlement of public money in federal court.Sandra Kay Martinez, age and address unavailable, was charged this week in U.S. District Court, Southern District of Iowa. She was a postmaster in Scott County when the alleged crime occurred.According to court records, the suspect allegedly embezzled $1,000 in government money from Jan. 1, 2004, to Dec. 12, 2005.
- Quad City Times

## Royal Neighbors thief gets 5-year term

- Saying he was sending a message to make sure embezzlers "won't be resting very well tonight," Circuit Judge Charles "Casey" Stengel upheld the five-year prison sentence Tuesday of Darin L. VanRaes in Rock Island District Court.A former employee of Royal Neighbors of America, VanRaes, 36, of Coal Valley, Ill, pleaded guilty in November to using the company's credit cards and checks to purchase computer equipment. He was sentenced to five years in prison and ordered to pay $90,859 in restitution as a penalty for felony theft.
- Quad City Times

## Embezzler sentenced to 42 months in federal prison

- Pamela Sue Leichty, 56, of Rock Island, was sentenced Thursday morning to 3 1/2 years in federal prison for embezzling nearly $800,000 from the Quad-City Garage Policy Group.Leichty also was ordered to make full restitution to the agency for whom she served as senior financial specialist.In exchange for no prison time, she offered to give back all the money she earns the rest of her life, but the judge presiding at the sentencing hearing in U.S. District Court, Rock Island, said a stronger deterrent is needed against such crimes. The embezzlement occurred over a period of three years and was not spotted during three audits of the agency's finances.The U.S. Attorney's office recommended a sentence of 46 months instead of the 42 handed down by the judge. The maximum penalty she could have faced was 15 years in prison and a $500,000 fine in addition to restitution. There is no probation or lessening of a sentence in the federal court system.In pleading guilty Dec. 21, Leichty told the judge she had "a severe gambling problem.“
- Quad City Times

## Profile of an embezzler

- What do they look like?
- How do they act?

## Slide 11

## Slide 12

## Recognize the signs of embezzlement 

- An embezzler is often the most trusted person in the office, one who stays late and is protective about his work area.
- You entrust the people you hire, pay them to do their job, and they “act” like they would do anything for you—it is only human to feel that they should be trusted
- The thieves will stay late and come in early. They will want to take work home with them.

## Recognize the signs of embezzlement

- Embezzlers often reveal themselves through noticeable lifestyle and behavioral changes. Embezzlers are often first-time criminals whose feelings of guilt cause them to act erratically and unpredictably.
- They usually spend the money they have embezzled rather than saving it. They exhibit unusual behavioral and lifestyle changes.
- Other recognizable signs of embezzlement include anything out of the ordinary, such as unexplained inventory shortages, unmet specifications, excess scrap material, larger than usual purchases, significantly higher or lower account balances, excessive cash shortages or surpluses, and unreasonable expenses or reimbursements.

## The TheftA billing scheme

- All billing schemes have one common purpose, regardless of their form: to get the victim to voluntarily make a payment to or on behalf of the fraudster and record the payment as a legitimate business expense. The victim should not realize that they have been a victim of a fraud.

## A billing scheme has three parts

- 1. Creating the false entity to receive the payments. This includes creating the method of receiving the payment. The fraudster may open a bank account in the name of the false entity, or they may decide to cash the checks in some other manner and not have an account that can be traced if the fraud is discovered.
- 2. Creating the false invoice for payment. This is usually the easiest part of the fraud. This can be done on a cheap computer and printer.
- 3. Manipulating the system so that the payment is approved and made. How this is done will depend on what position the fraudster has in the business.

## Software: Know how your software works 	

- 		The employee figured out how to get around the 	safety elements in the software.
- 		The employee would enter an invoice either fake or real in the name of a legitimate vendor. If it was a real invoice, the amount would be increased. She would then generate a check run based on these invoices. Prior to running the checks she would change the vendor name to her own or split the invoice into two payments, one legitimate, the other to her self. She would then print the checks.
- 	The software allowed a re-print of checks in the event the printer would jam or fail. The employee would run checks made out to herself and legitimate vendors. She would then reset for a re-run of the checks, go into the system and change from her name back to the vendors name and re-run on green bar paper, update the system leaving a trail of actual vendors on the check register.

## Wow, no one noticed?

- Auditors								Make sure your Auditors follow the engagement 	letter and 	standard auditing procedures.
- Banks								No responsibility to notify businesses of 	strange 	transactions.
- Casinos								No responsibility to question were money lost comes from.
- Employees								Many suspicious co-workers, no one raised 		questions in fear of embarrassment.
- Supervisor								Follow your established internal controls

## Don’t let it happen to you...enforce these basic controls:

- (i) Where possible the separation and rotation of duties between (1) the person making the orders and submitting the invoices for payment; (2) the person preparing the checks and banking records; (3) the person recording the transactions in the businesses records; and (4) the person signing the checks.
- (ii) Invoices should be approved by one person and that person should not draw the checks or have the authority to order goods or services. This person should be completely independent to the other processes.

## Don’t let it happen to you...enforce these basic controls:

- (iii) Purchases should be done with pre-numbered purchase orders. All suppliers should be given authorized orders and invoices should not be authorized for payment unless they match authorized orders.
- (iv) Random checks on invoices may locate fictitious entities being used for billing schemes.
- (v) Using pre-approved suppliers with pre-approved mailing addresses limits the opportunity of using a fictitious entity to conduct the fraud. Any invoice from a supplier that is not pre-approved should be verified before payment is made.

## Don’t let it happen to you...enforce these basic controls:

- (vi) The use of electronic payments to pre-approved bank accounts will stop checks being diverted to fraudulent entities.
- (viii) Randomly check the name and addresses of suppliers, particularly when the only address on the invoices is a postal address.
- (ix) Audit purchases with pre-approved suppliers to look for payments to similarly named suppliers. An approved suppliers name, or a very similar name, may be used by a fraudster without their knowledge.