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The collateral damage of employee fraud

Aug. 21, 2017
In this new monthly column, Certified Fraud Examiner Jean Patterson presents real cases of fraud from dental offices and other businesses. This month, Patterson presents a case in which $170,000 was discovered stolen, along with a profile of the perpetrator.
Jean Patterson, MBA, CPA, CFE, Owner, J Patterson Consulting

In this new monthly column, Certified Fraud Examiner Jean Patterson presents real cases of fraud from dental offices and other businesses.

In 2010, I worked on a case for Specialty Components Inc. (not its real name) in northwest Ohio (not its real location), which suffered a loss from employee theft of $170,000 (this part is real—at least it is the amount we could prove).

For the most part, it was a routine case: suspicion, initial evidence gathering, law enforcement involvement, interview, investigation, and resolution. Part of my role was to determine where in the general ledger Susan (the perpetrator) posted the other side of the misappropriations in order to file the insurance claim, and establish the restitution amount. To do this, I used the computer Susan had used prior to her termination, and I did so while sitting at her work station. The computer hard drive had already been copied and taken off-site, so I could work without damaging or changing evidence. Because of the open configuration of the office area, I was able to hear much of the conversations of the employees who remained.

For the first time, it occurred to me how far-reaching the effects of employee theft can go. There was an overwhelming sense of betrayal—something that I believed warranted further study. With the owner’s permission, I conducted an informal survey of the employees who worked with Susan on a regular basis. The comments made included, "she was constantly complaining," "moody," "rarely did she have anything positive to say," and "she seemed ready to bite your head off." Her behavior was consistent with someone who needed to be isolated to carry out her scheme. Her manner ensured that coworkers spent the minimum amount of time necessary with her.

Uncertainty permeated the company. Would there be layoffs? Would the company survive? Some had worked there more than 20 years.

What struck me the most was that the employees felt betrayed not only by Susan, but by the company owners. The law requires that employers provide a safe workplace. Employer negligence regarding safety carries severe consequences. Yet, employer negligence regarding accounting controls and verification systems seems to be a “noncovered” item.

Is it safe to assume that workplace systems and design can keep you from bodily harm? It most likely is. Can you assume that most business owners employ sufficient systems to safeguard the business from theft? Unless you are on the front lines of the accounting function, it is difficult to know.

While cash and property misappropriations can have a devastating effect on business owners, they are not the only victims.

Jean Patterson, owner of J Patterson Consulting LLC, has been a CPA for more than 30 years and a Certified Fraud Examiner since 2009. She advises dentists regarding accounting, tax, and fraud issues, and can be reached at [email protected].


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Editor's note: This article first appeared in the Apex360 e-newsletter. Apex360 is a DentistryIQ partner publication for dental practitioners and members of the dental industry. Its goal is to provide timely dental information and present it in meaningful context, empowering those in the dental space to make better business decisions. Subscribe to the Apex360 e-newsletter here.

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