Too often, victims of pink-collar crime never see justice done. But vigilance can decrease your chances of falling prey.
This article is excerpted, with permission from the author, from Embezzlement: How to Detect, Prevent, and Investigate Pink-Collar Crime, by Kelly Paxton, CFE, PI
Crime can happen to any business owner. It can happen no matter how smart you are, how much money you’ve made, or where you are on the organization chart. If you become a victim of embezzlement, it will cause you pain, grief, heartache, and questioning of your own beliefs. That’s normal. All you can do is try your best to prevent it — or to spot it early on.
That’s what this article is for.
Watching for Pink Flags
You have this feeling that something just isn’t right with your business finances. Maybe it’s a nagging suspicion that your accounting numbers don’t add up. For example, let’s say that you sold X number of widgets, but your bank account doesn’t seem to reflect those sales.
Or maybe you’re getting a bad feeling from one of your employees or colleagues. It might start with some of the pink flags I describe in my book: a co-worker’s been spending a lot of time away from work, has changed in ways that suggest an underlying problem, such as drug addiction or mounting debt, or is suddenly living a “high life” that seems well beyond their means.
Before I suggest what to do if you start seeing pink flags, let’s dive deeper into that last one.
Lifestyle Check
If you suspect an employee or executive of theft, consider an informal “lifestyle check.” What do I mean by that? I mean paying attention to what your employees are saying and doing — or wearing and driving. Are they suddenly going on lavish trips or splurging on luxuries? Do these expenditures seem within range of their salaries?
This isn’t about stalking or judging them. But paying attention to your employees’ lifestyles may be more valuable than background checks. If you look at the ACFE statistics, most embezzlers don’t have criminal histories. A 2010 study of fraudsters found that very few had any previous fraud charges or convictions.
Anecdotally, every business owner I’ve interviewed after a theft has taken place tells me stories about how things “just didn’t add up” about the suspect. Often, the suspected employees took lots of expensive vacations, spent more money than other staff members and generally lived a lifestyle that was not in sync with their salaries. One example in particular was a dentist client of mine who said, “I should have known when she drove a newer Lexus than I do!”
This is what investigators like to call a compelling clue.
Here’s another good example of easy-to-spot clues. Larry Keith, the owner and CEO of Entek Manufacturing based in Lebanon, Oregon, asked for an investigation by the Lebanon Police Department after he became suspicious of company accounting irregularities. He noticed a change in executive assistant Rhonda Milligan’s behavior and wondered how, on her salary, she could afford assets such as a Cadillac Escalade, a horse arena, and several horses.
It turned out that Milligan had embezzled $848,000 over a six-year period. Apparently, she was an authorized personal checking account signatory for James Young, the previous company owner. That was because she was tasked with paying his personal bills. She also stole tens of thousands of dollars from the company’s petty cash. Milligan was the assistant to both Young and Keith, but she only stole from Young.
I like to call these two embezzlement discovery examples “parking lot audits.” Thank you to Deanne Sullivan, CFE, CPA for that term. Does the car match the salary? Is your $30,000 administrative assistant driving a Tesla, Mercedes or a Range Rover? A desk audit might reveal photos of horses, vacation homes, boats, vacations, etc. that don’t seem to align with the employee’s pay grade. Those are pink flags to be aware of.
That said, remember that this employee’s spouse might actually have the income to afford these expensive cars. So don’t jump to conclusions too quickly.
Next Steps
Let me be clear: While it’s important to watch for accounting and behavioral pink flags, if you do suspect a crime has been committed, I am NOT suggesting you start snooping around on your own. If you walked into your office and saw a dead body on the floor, what would you do? You most likely would not touch the crime scene. You’d call 911.
Yet, when business owners suspect embezzlement, they often start tampering with the evidence.
These are not DIY cases. Why? Because you could end up destroying evidence by accident. You need to call in professionals.
Your first call should be to your attorney. If your attorney isn’t experienced in embezzlement or fraud, you should ask for a referral. You don’t want high-priced professionals educating themselves about fraud on your time and dime.
The attorney you hire should then retain the services of a fraud examiner or forensic accountant. You also may need to hire a computer forensics expert.
If you have an “employee dishonesty” insurance policy, you need to contact your insurance company right away. There are clauses about the timing of your notification when it comes to the claim. Document everything that you’re doing, such as how and when you’ve contacted your attorney and others.
Conclusions
Unfortunately, fraud happens, and business owners need to understand how and why. That’s why I believe that speaking about pink-collar crime and embezzlement is the most important work I have done in my career. Many folks just can’t imagine women as fraudsters, and I’m here to tell you that they most certainly are, more often than you may think.
That’s why I wrote a book on the topic: I wanted to arm business owners with knowledge to decrease their chances of becoming victims of pink-collar crime — not only to reduce their losses, but to avoid the pain, grief, and self-questioning that arise in the aftermath of a theft.
About the author:
Kelly Paxton is a Certified Fraud Examiner and private investigator with more than more than 20 years of investigative experience. She’s a frequent public speaker on pink collar fraud, the host-founder of the Great Women in Fraud podcast, and author of Embezzlement: How to Detect, Prevent, and Investigate Pink-Collar Crime.