When a trusted employee steals

REGION – It's still hard for Kristin Grassa to believe that the woman currently serving a jail sentence for embezzling from Constellation Networks Corporation (CNC) was her trusted vice president, a longtime friend and co-worker, and her maid of honor.

"One never expects it to happen to them-by persons you trust so emphatically," said Grassa.

Grassa, the president of CNC, a global satellite service provider based in downtown Traverse City, discovered last summer that her vice president had been writing checks to herself over a three-year period and also occasionally paying herself twice when she did payroll. She is currently serving a six-month sentence for embezzling more than $50,000.

In a region dominated by small businesses and organizations, many with employees who often become like family, embezzlement can hurt much more than your profits.

In those cases, "it goes a lot deeper than the financial," said Grand Traverse County Prosecutor Alan Schneider.

How does embezzlement differ from other kinds of theft?

"With embezzlement there has to be a fiduciary relationship between the individuals," explained local defense attorney Jim Hunt, who defends two or three embezzlement cases a year and said occurrence of the crime locally is "relatively constant."

While it may seem that embezzlement cases are making headlines with more regularity, Hunt suspects that the crime may simply be receiving more publicity either because of the amount of money allegedly stolen or the person involved.

Embezzlers can face either a misdemeanor or felony charge, depending on the amount allegedly stolen. Schneider said felony charges are the most common and that the county prosecutes 10 such cases a year on average. From his perspective, the nature of the crime isn't changing, either in terms of the amount of money stolen or the method employed.

"It's been fairly steady over the last 10 to 15 years," he said, of the occurrence of embezzlement cases. The exception was 2006 when 19 felony cases were tried, a spike Schneider couldn't attribute to anything specific. Most cases involve small companies with revenues between $500,000 and $4 million, he said, and with one "trusted employee" to handle all the financials.

When Grassa first discovered an accounting error at CNC, her former vice president became "unusually defensive" and questioned Grassa's concern. It was at that moment, Grassa said, that it hit her.

"That is when reality smacked me in the face…that I had zero 'checks and balances' since she cut all the checks and reconciled the accounts, as well," she said.

Immediately, Grassa called her bank and requested that a file of cancelled checks be sent to her home (something she recommends all business owners do) and discovered the unauthorized checks her employee was writing to herself.

It's the lack of checks and balances that legal professionals identify and Ruth King has seen in her years as a small business consultant. King, who is based in Georgia, cited numerous situations in which owners didn't have internal controls in place.

"They are business owners who make it too easy for [an employee] to take that chance, and then that chance becomes a vicious cycle," said King. "The job of a good embezzler is to become the trusted bookkeeper."

She has collected her years of professional experience, including client stories, in a manual titled "21 Ways to Keep Your Honest Employees Honest," in hopes of providing companies with easy strategies that will leave them less vulnerable to an embezzlement (see 'Steps' above).

Years ago, a lot of embezzlement crimes "got swept under the rug," she said, recalling a situation from 10 years ago in which she had to tell two partners of a company that the third partner was embezzling at least $50,000 a year from the company coffers. The other two partners wouldn't prosecute because they were in a small town and they were ashamed of it.

Now, however, she is seeing people take the appropriate legal action.

"Employers are filing charges and people are getting thrown in jail," King said.

The top two reasons people embezzle are hardship and "out and out greed," said Schneider. Both Schneider and Hunt said the majority of cases involve women, simply because women tend to fill the financial roles within these companies and organizations.

In cases of hardship, most people intend to pay it back, but then "it just snowballs," said Prosecutor Schneider.

Because of easy access and a lack of checks and balances in the system, the embezzling "is typically not a single situation," Hunt said, but something that happens over a long period of time and the intention to pay it back is long forgotten.

When it comes to greed, Schneider said more often than not these individuals are getting adequately paid by their employers and for some reason feel entitled to more.

Grassa now performs all bank reconciliations herself, a task she used to think was tedious and something she could entrust to her employee. She also outsources her payroll and for less than $100 per payroll has assurances that there aren't any mistakes or inconsistencies. BN