The below summary is based on a story printed in INC MAGAZINE - 5/03 -
A THIEF WITHIN
Author-John Grossmann Grayed sections represent Auditors Inc. commentary.
Patty Preston (not her real name), a bookkeeper for Graff-Pinkert Inc. (a family run business in Oak Forest, Ill) made one mistake - she took a vacation. Lloyd and Jim Graff (brothers) are the owners of the company that buys and sells machines with metal components. It was another employee of the company that sighted several misdeeds by Patty Preston i.e. the charging of some personal items to the Graff-Pinkert account at Office Depot.
Most small companies have only 1 employee looking after the books - so who would be around to notice such a problem in your company?
The brothers investigated these claims and discovered that they were true. They called her and left a message on her answering machine, firing her immediately "for being a petty crook".
Imagine the brothers' chagrin at discovering that the "petty crime" was anything but! "She had funded riverboat gambling and an extravagant lifestyle out of the Graff-Pinkert account for at least four years. The bad paper ran to dozens of checks and exceeded $200,000, a big hit for a company doing between $8 million and $10 million in sales."
Now try to imagine your trusted employee stealing $200,000 from your company and your still being around to tell the story. For most companies, the size of this theft is enough to put them into bankruptcy.
Graff-Pinkert, a company started by Graff's father in 1941, mostly does business on a handshake and it is that spirit that permeates the interior of the company as well with their 18 employees - or at least it did. The Graff brothers provided their employees with interest free loans.
Jim and I walked around punch-drunk as the enormity of the crime mounted up. It was a real blow to our confidence. We felt dumb." Patty's co-workers were even angrier than the Graff brothers. They trusted her too, socialized with her and felt violated as well. Their accountants also missed the theft during annual audits.
Once again, the requirements for audits have been so weakened over the years, that the only way to uncover most thefts through an audit is to request a special forensic audit which is much more expensive and time consuming .
The Graff brothers were angry and wanted justice - "local police seemed ill-prepared to handle white collar crime." They wanted to sue their bank and their accountant in civil suits citing negligence. "But mounting a strong case could take years."What about their negligence??
It was suggested that they try the FBI since Preston had fraudulently mailed checks across state lines. The FBI was willing to take the case but only on the promise that the Graff brothers would see the case through. The FBI cited "The tendency for many business owners is not to prosecute. They don't want their dirty laundry in public and don't want to look stupid for allowing someone to so easily take advantage of them."
The Graff's did eventually recoup a large chunk of their money. They chose not to sue their bank (citing their long standing relationship) nor their accountant-but they did fire them and hired a hard-nosed replacement.
When Patty appeared in court for sentencing, she did not say a word. "Lloyd Graff did speak. Pointing to his employees, he stressed that the crime had torn a hole in the very fabric of a business where all were considered part of the family."
Patty Preston was sentenced to 24 months in the federal penitentiary and now works as a hotel housekeeper. "Yet the Graffs are still somewhat defensive about the woman who betrayed them; for this article, the brothers asked INC to refrain from using her real name."