Business Damages: Detecting Employee Fraud

Video Transcript 

My name is Robert Bonavito New Jersey Forensic Accountant. This video is part of a series of videos where I discuss forensic accounting topics for educational purposes only. If this was a litigated matter, I would take a different approach, have different conclusions based on different facts and circumstances. And today's video topic is going to be 'Employee fraud.'

Employee fraud is one of the biggest reasons companies lose money in the United States. If you look at the retail sector, the gap and the limit in all these other stores, their main focus is not stopping people from coming in and stealing. Their main focus is protecting their inventory from their employees.

I think something like 80% of fraud or theft occurs from employees, not outside theft. Some schemes that are used by employees are embezzlement, cash and check schemes, accounts receivable fraud, inventory fraud, fictitious disbursements, you name it, employees will do it.

We had a case involving a bookkeeper who ended up going to jail. I think we testified in court for two or three weeks on this man's pretty complex matter involving lots of things that were happening in this company. But what happened was this business owner had a bookkeeper that he relied upon heavily. And he noticed that for years and years and years it seemed like the sales were good but he just wasn't making a lot of money or enough money, and he didn't quite understand why.

He had a great business. He had good customers, but he didn't pay much attention to his bookkeeping. And one day the bookkeeper came in and wasn't acting natural. He said something about payroll, and he wanted the payroll records. And he got a little concerned so he called us up, and he said, "Listen I want you to go through all my records and let me know if everything's okay." So we did and what we found out was that his bookkeeper had given himself 100% raise.

He was making more than the owner of the company. He also was writing checks to fictitious vendors. He set up companies, and he was writing checks to these companies from the business. He also was transferring money to his mother's bank account, and he was also charging things to a credit card for the company that he set up.

So he was stealing money four different ways. And like most frauds, it wasn't that he was dishonest from the beginning it just started out eight years ago he wrote a check for something he shouldn't have, he paid American Express or something, his own American Express. And from there he kept on doing more and more and more until he pretty much bled the company dry. And the owner sitting there he didn't understand why he had no cash flow.

So, Employee fraud is something that you should be concerned about. It's something that a forensic accountant is very good at finding. We can document it, in this case, we went to trial, and there was other issues too in this case because it was cash flow issues and we had to testify. But the bookkeeper did end up going to jail as a result of our testimony.

My name's Robert Bonavito if you have any questions on this video feel free to call me or e-mail me.