There’s a school of thought that you can’t begin to address a problem until it is acknowledged.
The following statement may not shock anyone, and if it does, you have not been paying attention:
White collar crime still pays.
Let that sink in for a minute.
To be abundantly clear, this is not an endorsement to go commit any crimes whatsoever, but just a reminder that most of the time, the perpetrators of white collar crime do not face much of a penalty. It?s a sad reality that we should not ignore, especially for those of us who operate in any role as a fiduciary.
Due to my experiences and interactions over the years, I believe I can speak with some authority on this subject. I have seen books and records of businesses where fraudulent actions have occurred, and most of the time I have interacted with the perpetrators. The following cases highlight some of what I’ve witnessed:
Case #1 – A controller at a business embezzled almost $200,000 in less than 3 years, for a business doing under $10 million at the top line. He set up expense reimbursements as direct deposits into family member accounts. He always made the payroll entries so no one looked through the payroll detail. The best part of the story was how he got busted. The receptionist, of all people, raised the alarm bells. Turns out the controller was a compulsive liar, and the receptionist finally had enough and grew suspicious. When they went through his office, he had a book on how to commit identity theft (and had access to employees SSN’s). It should be noted, the firm did not do a professional background check on this individual.
Case #2 – The owners of a distribution business had devised a creative way to enhance their “after tax” income. This involved making large withholdings directly to the IRS and then getting refunds. The trick was that the withholdings weren’t ever classified as part of income. The “problem” they had was that they couldn’t sneak it past the CFO or the auditor. So, everyone ended up getting a cut of the action. The business ended up failing and selling through a liquidation, with the bank taking a pretty big hit. While doing due diligence, prior to the sale, it seemed that the CFO was incompetent, since none of the numbers made any sense and constantly changed. It turns out, most of the entries into the accounting system were done in huge batches, which made it virtually impossible to decipher anything, thus covering the trail. None of the parties were ever prosecuted. The bank’s main concern was that the auditor was responsible for the audits on other bank customers, so naturally, the responsible thing to do was let those businesses become borrowers at another institution (yes, I’m being cynical).
Case #3 – An business owner was trying to defraud the military, by selling an inferior product. He was never fully investigated for this, and never suffered any jail time or fines for this (it’s a long story). However, he did end up serving jail time for a different crime, a DUI. It should be noted, it was the fifth or sixth one that finally got him in trouble. The reason for the prosecution to finally take action though, wasn’t necessarily due to the volume of DUI’s (most never made it on his record, rumor was $10,000 was the asking price), but that he had a child with him on one occasion. That was the straw that broke the camel’s back. The orange jumpsuit was appropriate on him.
I kept tabs on all of these situations to see if there were ever any convictions on the individuals involved, and they never materialized. Trust me, I knew how to navigate the search for the department of corrections, I mastered that related to an armed robbery case in which I was a victim. Besides, in order to be convicted, one has to be charged in the first place.
In part 2, I’ll delve into some of the headline cases and the challenges in pursuing them.