Embezzlement Part 2: How We Got Embezzled

This post is part two of our embezzlement series. Read the first blog here before diving into this story about how we got embezzled. 

Here's BaseBuilder's founder and CEO, Doug Rawson, with more about embezzlement. 

Our bookkeeper embezzled around $100,000 in funds over five years. Let's talk about how she did it.

Reliving this story still hurts me to this day - this was over 20 years ago, but I think it's important to get it out there so you can protect yourself from incidents like this. 

Said bookkeeper used three primary sources to steal money from our firm:

• Petty cash
• Company-issued credit card
• Checks

It's hard to tell exactly when the petty cash theft started happening, but she started there and gradually moved into credit cards and finally into checks. What made her theft so hard to detect is that she did not get greedy right away - she grew it over time. 

The first year she embezzled, she got around $3,000. In the last year, before she got caught, she came close to $50,000. It got to a point where a big chunk of money went out the door to somebody that's not supposed to have it. Let's dive into how she did it. 

Petty Cash

At first, she took out $20 here and there, which she would then reconcile against the receipts. She'd make up receipts as she did the reconciliation. Nobody was checking her. If the petty cash dwindled, she would need to get a check written. She would come to me, and I would sign a check for petty cash, not noticing how fast the petty cash account went down. 

To make sure she stays hidden, she would switch between me and my partner. She'd ask me to sign the current check and have my partner sign the next one. I wasn't checking with my partner or telling him that I signed a check for petty cash. He wasn't checking in with me or telling me about these checks either. Neither of us knew how much money was going through the petty cash account. 

If you look at QuickBooks' profit and loss statement, you'll get all the accounts there and find out how much money went into each account, but it won't show you how it got in there. Did it go through as petty cash? Was it a credit card charge? Was it a check that was written? You'd have no idea unless you're having the receipts turned in to you before you give it back to your bookkeeper. You could have one person in charge of doing the petty cash, and you'd have no way of knowing exactly how that particular account is doing. 

Over time, our petty cash account grew in its balance. I wasn't looking at my balance sheet, so I didn't notice that it had grown up as high as it was. When I noticed how big it's grown, it became the trigger that got us looking into the whole fiasco. It was through petty cash that we discovered embezzlement had been going on. 

Company Credit Card

I'm not sure whether she did this on purpose, but she built a bit of a pretense. She would walk into my office and go over my credit card line items to ask which project does each one goes to. She'd do it with my partner and other cardholders within the firm as well. 

I, my partner, and project managers have credit cards to take care of company incidentals or to pay for travel. She was in charge of making sure that there were no unvalidated expenses on anybody's credit card, but we did not know she had a lot of them. We thought she was guarding the henhouse. Turns out, she was the fox we had to watch out for.  

She started purchasing personal items. She'd go to Costo to buy stuff for the office, and then she'd throw a few things in the cart for herself. It started there, and then it grew over time. There was even a point where 100% of the purchases were for herself. She even made three same-day charges on a 711 once, all for gasoline. I assume she filled up her car, her husband's car, and her stepson's car with gas. They just met in that 711 and passed the card around. 

Checks

This one was my fault. As we talked about in the previous post, I signed blank checks. She would hand me a stack of checks before I headed out of the office. Two of them would be already printed up to vendors, and she would hand a third one saying that she's getting ready to pay another vendor so I would sign it. Turns out, she'd tucked that third check away in her drawer. When she needed some cash, she'd make it out to herself, and she'd steal somewhere from $100 to $500 at a time. 

Eventually, it got to a point where she didn't have a signed check, so she forged my signature - that's a full-on forgery. And, of course, she was doing the reconciliation. When the bank statement would come, she would make the changes in QuickBooks to make sure she wouldn't get caught. When she's off by, let's say, $300, she'd falsely increase the amounts on other checks to make up the difference. All of a sudden, the FedEx bill was $50 higher, or the power bill would be up to $100 higher than what it was, etc. 

If you weren't checking bank statements and checks, it's time you did. There was a bunch of money buried in our expenses that went out to her. The banks would not return checks - they would just print mini pictures of the checks on the statement, and I wasn't looking at those either. 

When we started digging in, we found them - they were right there for us to see the whole time. Where were they? Filed away in the cabinet behind her desk where she didn't think we would ever look. It wasn't too hard for her to take money from us because I didn't have the right checks and balances in place to make sure it couldn't happen. 

If you learned something from this experience, consider sharing this post with your colleagues and associates. We want to get the word out and give everybody the chance to learn from this incident so they won't make the same mistakes I made. 

In the third part of our series on embezzlement, we will talk about how we caught our former bookkeeper. Click here to read all about it.