Embezzlement Part 3: How We Caught Her

In the last part of our series on Embezzlement, Doug Rawson talks about how he caught his former bookkeeper, what was done to gather evidence, and what happened to the bookkeeper after these events. But first, let's get into the story of what went down after Doug first discovered the embezzlement.

In 1995, we were in the process of selling our engineering firm. I had decided to go full-time into BaseBuilders. After doing both for a couple of years, I figured it was time to sell the firm to another electrical engineering firm.

I was looking at the balance sheet, and I noticed that there was a high balance in the petty cash account. It was something around $300. Remember, this was over 20 years ago so the recall may not be perfect. I went up to the front of the office and asked her why we had such a high balance. She said that she just hasn't had the time to reconcile, and she'd work on it right away. I walked away, and around the corner, I stopped and paused because I felt that something was a little off. I walked back up and told her, "you know what? Instead of doing that, why don't you just bring me those receipts?"

At that moment, I knew something was up - she was flush, and I could tell she got that sinking feeling in the pit of her stomach. I just knew something was going on. I had no idea how big it was going to be. I just knew that she had stolen petty cash.

She replied, "okay, I'll get that all gathered up for you." I went back to my office, and 40 minutes later, she came in, sat down, and said, "Doug, I don't have the receipts."

I said, "why?"

She replied, "I just haven't been on top of it. I know I should have. That's my fault. I let stuff fall through the cracks. You know what? For any receipt that's not there, I'm just going to pay that money back. I shouldn't have let that happen. That's my fault, and I'm going to pay for it."

Who's going to say that? I knew that I had her dead to rights. I just said okay, that will do. She went ahead and did that. All of these happened near the end of the day. I just hung out in the office until the end of the day and waited for her to leave, knowing that things had gone awry.

I went and told my partner what was going on. I changed the password on QuickBooks immediately, so she couldn't go in and cook the books any more than she might have already done. We reached out to some colleagues of mine who are business owners themselves. I talked with them and they told me, "bar none. What you found was just the tip of the iceberg. Sure enough, it was.

That night, I stayed up until midnight. We started digging and found checks, missing receipts, and all kinds of things. We ended up with about $28,000 of embezzled funds that we were able to quickly identify in just a matter of a few hours.

In our previous post, we talked about how she did it, you can click here to read that part of the story.

The whole thing happened under our noses the entire time. If only we'd been looking, we would've found out. But we weren't because we trusted her, and the trust was betrayed.

I think most entrepreneurs commit the mistake of trusting other people to the detriment of their own businesses. I take full responsibility for what happened because I didn't have the checks in balances in place.

We had it all figured out, and when she came into work the next day, we called her up to the conference room. At this point, I think she realized that the jig was up.

Before she got into the room, I hid a tape recorder and I pressed record. In the state of Nevada, you can record any conversation as long as at least one member of the conversation agrees to the recording. I agreed.

We recorded our conversation with her. I presented things to her like a check that was made out to her for $250 that should not have been made out to her. I then asked her, "What is this?" And slid it over to her and she answered it.

"That's a copy of a check." She replied.

"And whose name is on that check?"

She read the name.

I asked, "and that's you?"

She said, "yes, that's me."

"And how much is it for?"

"$250"

I said, "what was that for?"

She answered with a rising intonation, as if she's asking a question, "an advance?"

"An advance. Okay, so you were going to pay that money back?"

"Yes. I was going to pay this back."

"Great. Who gave you permission to take that advance? Did my partner give you that permission?"

"No."

"Did I give you permission?"

"No."

"So you did this without permission."

"Yeah."

"You said you were planning to pay it back. Well, it's been several months since that check was written. How soon did you plan to pay it back?"

The conversation went like this over and over again as we went through multiple documents.

Before hiring her, I was doing the books. I spent two years on the grand jury in Washoe County, which is the county that Reno is in, and they have a sitting grand jury. The DA would bring cases in, present evidence, do this line of questioning, and then we would either give them a true bill or no true bill that would give them the right for the indictment so they could press charges and bring the case to court. I am well-versed in how to do the questioning because I spent two years working on these kinds of cases.

My experience with the grand jury really helped me in this situation. She had no idea we were recording the whole time. At the end of the conversation, I said, "you're fired. You're welcome to come in here and get your things. After a little while, you can come and get your final check."

Even when an employee is terminated for causes like these, you have to pay them their final check. That sucked.

My partner and I are playing good cop, bad cop. I was the bad cop. My partner kept telling her, "I'm trying to keep Doug from pressing charges. I don't want you to get into such a big mess. You could just pay this money back. We might sweep it under the rug and bygones will be bygones. It didn't take much convincing. She took the check, cashed it, and gave the money to us. Of course, that wasn't nearly enough to cover the amount she stole.

The next day, she came back with some additional funds. I think she and her husband got it out of their 401K, it might have been a life insurance policy. They cashed out several thousand dollars. Another day came and we found yet a whole bunch of evidence against her because I spent the day going through everything to get a good grasp of how bad the damage was.

I looked at her credit card and I saw a lot of purchases from Target. A lot of them didn't have receipts. What did our business need that was purchased at Target? Absolutely nothing. She was just shopping for herself. I don't even know that we discovered it all. You kind of get tired of digging after a while.

After I did the digging, I put together a very clear list. You could do this in a spreadsheet, but since I'm a database geek, I put them all in a database. In there, you can find every single charge that she made that was not needed in the company - every charge from Target, 711, the grocery store - everything I can find that wasn't intended for the company is in this list. I also added the checks she had written to herself. With the petty cash, we were out of luck because we didn't have receipts. We didn't know exactly where the cash went. That's one of the reasons why we don't know the final amount of money she stole, but we got up to over $90,000 of charges.

I put all the evidence together in a binder together with the recording of our conversations. I took everything to the police station to file a statement. When we met with the detective, he wasn't sure if he could work on the case right away because he was dealing with a lot of similar cases at that time. I presented my case anyway.

Our bookkeeper was getting ready to cash another large check, and we were counting on getting that money back. But the next day, a cop showed up at her door looking to question her.

During situations like these, it's important to do your homework and put the necessary evidence together. I organized the evidence and the recording so well that I presented the entire case to the detective without him having to do any work at all. But since they went and knocked on her door before she brought that money, we never got it back. I think she used that money to hire an attorney. I don't blame her. I would have also hired an attorney if I were in trouble. I just wish we got paid first.

We went through the entire system, from the police to the attorneys to the DA. They did get an arrest warrant, but they didn't go completely in. She hadn't gone to trial yet, but she did get a warrant. I got to see the booking photos, and by this time, she had moved out of the state, but she was told that she needed to come in and turn herself in. She did exactly that - she was arrested, booked, and released on her own recognizance. She was not a threat to society, and she returned to the state to turn herself in when the time came.

When we went to justice court to get ready for a trial. Her attorney met with the district attorney, and they did a plea bargain. We had a bit of a say in this bargain. Turns out, her parents and grandparents pooled together $65,000 as payback to us. In exchange for this payment, the charges would be dropped from a felony to a gross misdemeanor.

There was a big part of me that wanted to say no to the money and have her do time in jail. But the district attorney talked us out of it - our jails are full and she's not violent. We reluctantly agreed, took the money, and called it a day.

When we did go to court, I talked to the judge to say my peace. I was very teary-eyed, it was a very emotional time in my life - being taken advantage of like that always is.

We got 90% of our money back, we got $10,000 from our general liability insurance. In total, we got around $85,000 back. I know she took over $100,000 because we found around $92,000 of stolen funds without doing too much work.

She ended up getting two to four years of probation, and she had to do 400 hours of community service during the first year of her probation. I admit, it kind of felt good to see that happen.

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