Is somebody STEALING your profits?

Embezzlement cases show that local business owners lose millions of dollars a year to trusted but dishonest employees

by James Dunn

You trust her the way you would trust your sister. For years she has handled money matters for your business: bookkeeping, accounts payable and receivable, payroll, bank deposits, payments to the IRS. One day you notice she wears new diamond earrings with big rocks and totes a new $1,000 Gucci purse, but she makes less than $3,000 a month. Then she buys a new red BMW. When you compliment her, she mumbles something about an unexpected inheritance.

The following week the check for your quarterly taxes bounces even though your checkbook indicates that the account contains plenty of money. You go to the bank to complain and discover your records don't jibe with the bank's numbers, so you begin for the first time in a long time to look closely at your business finances.

Slowly, like tugging on a strand of yarn from an expensive knit sweater, you unravel her crime starting with that bounced check. She has been leaving extra room on her paychecks. After you sign them she adds a number: $983 has become $1,983 every two weeks for months or years. She cunningly juggles accounts to make it look as if pilfered funds went somewhere legitimate. She routinely forges your signature. You realize that your trusted bookkeeper has been stealing your profits. She is an embezzler.

Hundreds of embezzlers, almost all of them women and most of them bookkeepers, hit Bay Area businesses for millions of dollars every year. Police and sheriff detectives who specialize in money crimes investigate reported cases of vanished business profits.

But reported cases account for a small tip of the iceberg of actual cases, police say. Sgt. Tom Combs of the Santa Rosa Police Department estimates that 25 to 30 percent of all businesses suffer from some type of embezzlement at any given time. Security Management Journal estimated that employee theft, including embezzlement, costs American businesses more than $200 billion a year.

"I hate bookkeeping, anyway," said Marisa Beauchamp, who was accused of embezzling about $10,000 from the Santa Rosa Downtown Development Association.

When an embezzlement occurs, many business owners choose to hide it; they prefer to swallow losses rather than report them. They conceal the crimes in efforts to keep their business names unsullied, police say. The result: embezzlers learn lessons in trickery after getting caught at one business then refine their stealing techniques and graduate to their next business victim. Even when business owners report embezzlement, investigation and prosecution take so long that the embezzlers can find other jobs and resume stealing at other businesses.

Sharon Read, starting at age 29, worked as a bookkeeper at Faraudo's Auto Body, Inc. in Santa Rosa from 1981 until 1987, according to court records. She was solely in charge of Faraudo's business records and books. In 1987 owner Julio Faraudo went to police and charged that Read had stolen $70,568. In addition to the criminal case against Read, Faraudo filed a $500,000 civil lawsuit against Read and her husband, alleging damages, fraud and deceit.

Read, the lawsuit alleged, was “routinely and methodically altering or destroying daily bank deposit slips, checkbook balances and daily sales journals to reflect cash deposits being made.” It claimed she was depositing only the checks and keeping the cash for her own personal use.

After she left Faraudo's, Read went on to work as bookkeeper for the Green Mill Inn in Cotati from January 1989 to April 1989, court records stated, where she allegedly stole $22,316.

The Faraudo civil case against Read was slated for trial in January 1990, but she jumped bail and vanished, said sheriff's detective Harvey Head, who investigated the Green Mill Inn case. Read's husband wrote to the court that he had separated from her, had their daughter with him in Florida and filed for Chapter 13 bankruptcy. Sonoma County court records showed that Read had three outstanding warrants for arrest.

“I'm sure when we catch up to her, will find she's been doing books for somebody,” said detective Head, shown below on surveillance in his police car. “I'm willing to bet we find her embezzling. It becomes a lifestyle. You find easy victims who let you handle all their financial matters.”

Why do trusted employees choose to embezzle? Many embezzlers have financial problems: a husband out of work, a gambling or drug habit, a house under water or already in foreclosure. Greg Phillips, a police detective, recalled a junior college student who worked as a bookkeeper for a law firm. She stole, Phillips said, to buy fancy bling to impress her boyfriend. Another embezzler financed the redecorating of her home, and another bought boat parts on her boss's credit card. Embezzling is not always related to drug addiction, Phillips said, noting that many embezzlers rationalize that their victim's business will recover from the crime.

Typically, embezzlers are bright, confident women, said John Podboy, a forensic psychologist who interviewed about 50 accused embezzlers as clients during a 15-year period. Women who have been consistently denied job promotions or feel that they have been sexually harassed, for example, may embezzle in retaliation rather than expressing their anger directly, he said. “Despite their intelligence, they have not developed the ego strength or self-confidence to deal directly with someone about problems they encounter on the job,” Podboy said.

“They develop a good reason they should get another $3,000, $7,000, $10,000. They begin to feel better about themselves.” Sometimes, said Podboy, embezzlers delude themselves into thinking they will pay the money back, even hundreds of thousands of dollars in stolen cash.

"If you see her behind you, back up a couple of times. I'll pay to clean up your tires," said Vic Gasperini, owner of Gasperini & Associates in Santa Rosa, which was hit by an embezzlement of $100,000.

In February 1990, Marissa Beauchamp, then about 30, was arrested and charged with forgery, grand theft and embezzlement of public funds, about $10,000 total, from the Santa Rosa Downtown Development Association, which had an annual budget of about $140,000.

The Santa Rosa police file on the case stated that Beauchamp had been authorized to make out checks and keep ledger journals for the association. The report alleged that Beauchamp intercepted a bank signature card and added her signature without authorization. In the recreated bank records, police detectives found 19 allegedly illegitimate checks written between December 1988 and July 1989; 14 checks were made out to Beauchamp and endorsed with her name, the report stated.

In December 1989, Curtis Cavin, former executive director of the Association, examined checks at the Santa Rosa Police Department and indicated that 11 checks had been forged with his signature, the report said. Police obtained a search warrant and went to Imperial Savings in December 1989, where they found that checks had been endorsed by Beauchamp and credited to her account.

After Beauchamp left the association, she was hired as a bookkeeper by a business in Marin County but then resigned.

In March 1990, Beauchamp drove a tan Volvo to the Sonoma County court and appeared at a brief hearing wearing a plaid sweater, dark purple skirt and matching purple suede boots. After the hearing, Beauchamp spoke about the case. “I still get really emotional,” she said. “I feel terrible about it. My life seems to have been shattered,” she said, indicating she had no job and had lost a boyfriend as a result of the association case. “I hate bookkeeping, anyway.”

Beauchamp reflected on the crime of embezzlement: “You can't get away with it. Embezzlers don't do it just because they want a new car or they're missing out on some material thing,” she said. “It's more of a compulsive issue rather than somebody who wants to rip off somebody. It's not a mental disorder. I'm not crazy,” she said.

"It's more of a compulsive issue rather than somebody who wants to rip off somebody. It's not a mental disorder. I'm not crazy."

“I've wanted to say something for a long time,” she said. “It's been extremely distorted (in newspaper reports) and damaging to me. It's horrible. It's not like I'm trying to glorify it or whitewash it or say it's okay. It's not okay. It was not $10,000,” Beauchamp said. “It was maybe $7,000. It was not even all money. I'm not a bad person. I have problems. I didn't deliberately try to deceive someone.”

Employers who fall victim to embezzlers typically feel betrayed. Curtis Cavin, the downtown association's former executive director, said, “I was shocked and disappointed. I had put my trust in her and felt betrayed.”

The embezzlement hit Cavin hardest when he identified forgeries of his own signature on association checks at the police station. “That's when I felt I was a victim," he said. Beauchamp had unusual access to association finances during a leave Cavin took for the birth of his child, said Cavin, who hired Beauchamp in 1987.

Sharon Wright, who ran the management firm Wright and Associates and was the downtown association's executive director before Cavin, assumed interim control of the association after he left. She discovered the embezzlement and helped police build a case against Beauchamp, Wright said. “I started realizing we should've had more money. We were all of a sudden in bad financial shape. I saw things that were really suspicious,” Wright said. “When you go through something like this, you get really ticked off, angry. You feel very violated.”

"When you go through something like this, you get really ticked off, angry. You feel very violated."

Julio Faraudo, owner of Faraudo's Auto Dismantlers, also felt his trust had been betrayed. “She was innocent-looking, really frail,” Faraudo said of Sharon Read. “She bullshitted everybody. She moved all the numbers around. She was taking all the cash,” Faraudo alleged. Read, he said, had purchased diamond rings and new cars. For awhile, Faraudo was baffled that his business seemed healthy but profits were nil. “I had no money to buy inventory. It was like a treadmill. I had to take out a loan. I could not figure it out. We are still suffering. Nobody can take these kinds of hits,” Faraudo said. “If I had not owned my own property, I would have gone out of business.”

As nearly happened with Faraudo, embezzlement can destroy any business. Phillips, the detective who tackled the downtown association case, recalled another embezzlement where the victim was a surgeon who worked 80 hours a week. “He was making so little money that he took out a loan,” Phillips said. “He seriously considered leaving the area. His receptionist bookkeeper was stealing him blind.”

The surgeon's bookkeeper had a variety of shady practices, including intercepting payments on patient accounts and diverting them to her own account, Phillips said. “He was an excellent surgeon, but he didn't run his office.”

Often business owners who fall prey to an embezzler feel rage, raw fury. “I'd like this person to be dismembered part by part,” said Vic Gasperini, owner of Gasperini and Associates in Santa Rosa, which did landscape engineering and road work. His company was socked by an embezzlement of nearly $100,000. Although Gasperini filed charges, the case did not go to trial.

“It's a horrible thing,” Gasperini said. “No one can imagine how horrible it is. It cripples a business my size. She is skipping around having a gay old time. If you see her behind you, back up a couple of times. I'll pay to clean up your tires.”

Business owners whose employees embezzle find themselves pushed into the role of private investigator if they want the thieves prosecuted. Gasperini said he and his staff put in about 1,000 hours over a year to piece together the case. “You have to do all the work, sort it out yourself,” he said.

Wright hired an independent auditor for $1,400; the auditor worked for three months to recreate association records such as checks and invoices from vendors that had been destroyed. In addition, Wright worked with a full-time temporary employee to piece evidence together at a labor cost of about $10,000.

Faraudo spent $12,000 on a detailed accountant's audit on top of extensive attorneys fees. “I would have been better off to let her walk away,” he said. “But I want her caught. I want to see her in jail.”

Another embezzlement victim, a business owner who asked not to be identified, spent $20,000 to learn how $100,000 had been stolen from him.

Embezzlement may be the perfect crime, and experts say it pays. “Embezzlers don't see themselves as criminals,” said psychologist Podboy, shown below. No one is physically threatened; the embezzler uses no gun; there's no confrontation. Yet, said Annette Lombardi, attorney for Beauchamp and others accused of the crime, embezzlers usually steal far more money than is taken in a typical armed robbery.

The justice system treats embezzlers with surprising gentleness, detective Head said. White-collar crime, including embezzlement, falls to the bottom of district attorney priority lists. The district attorney has to actively prosecute dangerous criminals, he said. Convicted embezzlers typically receive probation for first offenses. They rarely pay back all of what they've stolen. Many go on to embezzle again.

One confessed embezzler stole a total of $200,000 from two victims, Head said. She was sentenced to a year in county jail, of which she served 90 days, and was placed on four years' probation and ordered to pay restitution. She paid one victim $100 a month, the other about $60 a month, he said. However, after four years, the court lost jurisdiction of the case and could no longer force payment, so the total restitution she paid was about $7,680.

“It's a pretty good crime, isn't it?” Head said.

“White-collar crime pays, it definitely pays,” Gasperini said. “There is quite a group of people who know it pays. When they get caught, the worst that happens is that they get probation; they are asked to pay back $200 a month. It's really stacked in the embezzler's favor.”

Detective Head rankled at the impatience many victims of embezzlement have with police efforts. “They want us to rectify within a month a problem that has taken them years to allow to occur. It's their shortsightedness," he said. Developing a case takes so long because the district attorney won't prosecute until an outside auditor has verified the evidence, he said.

Phillips and Combs said they were investigating one of their biggest embezzlement cases ever, one that involves more than $250,000. They can't yet say which local business was the victim. Could the next victim business be yours?

How to frustrate an embezzler

The uncomfortable truth is that if an embezzler hits your business, it's probably your fault. Most embezzlers are opportunists. They embezzle because the business owner makes stealing easy. Their methods are rarely brilliant.

“Often the person who embezzled is not a rocket scientist,” said Santa Rosa police Sgt. Tom Combs. “She sees a simple system that is flawed and takes advantage of it.”

In rare cases, highly skilled bookkeepers may devise complicated schemes to conceal their embezzlement. “Some sophisticated people know what they're doing and can milk a company dry without you knowing it,” said sheriff's detective Harvey Head. “But in the majority of cases, the owner is not checking bank statements.”

Embezzlers can be brazen. Marla Gullickson, former manager of Pisenti & Brinker's accounting and auditing department, recalled a case where an embezzler arranged for her personal car payment to be automatically deducted from the company account. Embezzlers, Gullickson said, “are people you would normally trust.”

A key to preventing embezzlement is separation of functions. “When one person controls all the functions,” Head said, “it's open season for embezzlement.” No matter how clever an embezzler is, usually she can't hide all the evidence. In forgeries, for example, the bank has a picture of the checks even if the embezzler destroys the check images that come with the bank statements.

Clues to embezzlement

Bookkeepers who never take a vacation or want anyone else to assume their duties may be juggling accounts and books to conceal theft; such employees may seem unduly sensitive to routine checks.

Unusual bad-debt write-offs may indicate embezzlement.

Increases in the percentage of returned merchandise could mean accounts receivable payments are being concealed.

Declines in collections may indicate money being siphoned off.

Changes in business patterns when the bookkeeper is absent can indicate embezzlement.

Inventory shortage may signal unrecorded sales.

Inordinate numbers of customer complaints about errors on their statements can be a sign of tampering on the statements.

Sloppy or overly complicated bookkeeping systems can be a coverup for stealing; also watch out for records that need to be rewritten so they look “neater.”

Slow collections can be a device to mask embezzlement.

Question profit declines: they could be a flag that embezzlement is occurring.

Preventing embezzlement

Don't assume that embezzlement is not happening because you can't see it or because your bookkeeper is a longtime trusted employee.

Have bank statements sent to the business owner's house so the bookkeeper doesn't have access to canceled check images before the owner has seen them. Be sure the check register matches canceled checks; look for altered checks and forgeries.

Separate duties so the same person does not make and record transactions or handle accounts receivable and also have access to the bank account and accounts payable.

Watch out for phantom vendors—fictitious businesses set up by embezzlers to milk money from your business. Such a business could have your business name and be located in another state. Call vendors you don't know; your bookkeeper may answer their phones.

Make sure all merchandise you pay for was actually received. Cancel invoices on payment to avoid double payment. A person who orders goods should not also approve payment for them.

In retail businesses, insist that your employees issue a sales receipt for each transaction; make surprise spot checks.

Establish written guidelines for employees' handling of business cash; insist that guidelines be followed. Limit the number of people who have access to cash and conduct random checks to be sure cash is not disappearing. Watch for unusual dips in cash sales.

To prevent stealing of payments, have a receptionist open mail and list checks received before giving them to the bookkeeper.

Have customer complaints about account balances go to someone other than the bookkeeper who does accounts receivable.

Require two signatures on checks. Don't delegate signing of checks. Require that all amounts on checks be left-justified. The person who prepares checks should not also sign them.

Never let your bookkeeper sign your name for any reason.

Occasionally look at your supply of checks to ensure that none is missing; look at the back of the checkbook.

In a large company where the owner cannot personally examine the finances, have an outside auditor take random samples of financial documents to reveal discrepancies that may indicate embezzlement.

Run background checks on potential hires for bookkeeping positions; you could uncover a bookkeeper's shady past. Be alert to any financial crises your employees have that could motivate them to steal.

Ensure that no one is placed on the payroll without your authorization; embezzlers can send paychecks to fictitious employees.

Require approval of all over-rings and voids at a cash register.

Provide separate cash registers for each employee and require each to balance the register often.

Set an atmosphere of double checks and reviews of everything.

Who embezzles?

On the surface, embezzlers are superb employees, said John Podboy, a forensic psychologist who counseled nearly 50 accused embezzlers over 15 years. Podboy described embezzlers with two psychological profiles: those who embezzle chronically and compulsively; and those who steal once in response to a need or as a way to express accumulated resentment at work.

Chronic embezzlers rarely can be turned back toward honest ways, Podboy said. They are repeat offenders commonly separated by periods of incarceration. “They're obsessive-compulsive, early to work, their desks are clean, they know where everything is, they're good with numbers, attentive to detail. Their personalities allow them to know all the ins and outs of taking money repeatedly, and not have it discovered. These crimes are pretty sophisticated.”

Such embezzlers have personality traits and personality disorders that make them vulnerable to the temptation to embezzle, Podboy said. They may be passive-aggressive, have anti-social tendencies, and may have a “corrosion of their moral constraints,” he said, “a wasting away of their set of values. Society's rules and mores don't mean much to them. They know damn well that people are being hurt.”

Anti-social people usually show a pattern of lying and cheating in school by age 15, Podboy said, and of taking other people's property. Embezzlers commonly have “an element of selfishness or narcissism, where they see their own needs as more important than the company's needs.”

One-time embezzlers, who embezzle out of a perceived need or in passive-aggressive retaliation, usually can be rehabilitated and may even go on to work honestly at bookkeeping again, Podboy said. These offenders “are not alcohol or drug abusers. They eschew these substances. They're on top of what they do in the company.”

For example, a bookkeeper may have a son who wants a special car for his 16th birthday. “She embezzles $18,000 and gets him the car,” Podboy said. Or such an embezzler may feel she is not getting a fair shake at work: the boss consistently doesn't ask her out to lunch, but invites co-workers, for example. “There are a couple of raw nerves there. You get enough sand kicked in your face,” Podboy said, “and you say, 'I could use $10,000 to put a little spice in my life.'”

Embezzlers typically don't discuss their plans to purloin with anyone, Podboy said. “This is the secret crime. Nobody knows about it.” Embezzlers don't tell their children or spouses, he said. “It's a way to exit their problems. They need shoring up psychologically. I explore what different avenues they could use to resolve problems other than the secret exit they have seized upon.”

Embezzlers are usually not proud of their wrongdoing, said Annette Lombardi, an attorney who defended nearly a dozen accused embezzlers in 10 years of practice. “You don't hear an embezzler bragging about it. They actually prefer to run in and plead guilty even before they know what they're charged with,” Lombardi said. Lombardi observed that embezzlers typically suffered abuse or instability in childhood, or they are reacting to a trauma in adulthood, such as expulsion from school or loss of a spouse. “I don't mind working with embezzlers,” Podboy said. “Many of them are neurotically troubled and seriously would like to function at a higher level. They're not committed to a criminal lifestyle.”

(original story published by James Dunn in 1990)