Valuation & Litigation Services Blog


When Does an Embezzler Go Too Far?

I’ve seen many corporate misdeeds in my forensic career, and each new case usually illustrates to me something I haven’t seen in some way, shape or form. (And I am always looking for new material, so please keep the forensic engagements coming.) During my continuing education presentations, I share with attendees that the embezzling employee usually doesn’t know when to stop. Many just can’t.

In some ways, embezzlement can be perceived as similar to any addiction. Once a fraudster starts, they have a hard time stopping. Worse, with each repeated theft, the “good employee gone bad” gains confidence that they will never get caught. They think that they cannot be caught, or at minimum that they are “smarter than everyone else” – that is, until the experienced forensic CPA or Certified Fraud Examiner arrives!

I joke with my presentation attendees and tell them if you are going to steal (and I do not encourage any criminal behavior), you have to “fly below the radar” and I usually refer to the phrase, “Pigs get fat, hogs get slaughtered.” The phrase focuses on the effect of greed. After all, many fraudsters are quite greedy by nature. Sadly in my experience, most internal embezzlers are “pigs.” They can’t stop. They are addicted – addicted to greed and the criminal behavior of stealing from their employer. Going cold turkey is simply not a viable option for many.

Recently in the news, there was an alleged theft of approximately $500,000 worth of tire-pressure monitoring sensors from the Ford plant in Avon Lake, Ohio. Each individual part was valued at about $100. The ten year, second shift employee stole between 5,000 and 8,000 sensors over a couple year period and was allegedly selling them on EBay for between $10 and $20 apiece.

We have investigated cases involving inventory shrinkages over the years. It is not uncommon for factory or shop employees to steal inventory (finished or raw) or factory supplies and then sell them at a major discount in a medium such as Craigslist, EBay, or even at local flea markets.

What made the Avon Lake Ford plant theft unique was the volume of stolen parts that directly resulted in stopping production at a major auto plant until the required parts could be flown in from Michigan. Imagine the questions running rampant in the mind of the shop manager. “What happened to all of the tire pressure sensors?” “How could purchasing not have ordered enough?” “What do you mean we have none left – they must be misplaced, now go find them.” “Are you actually telling me we have to shut down the production line?” It’s hard to believe. Don’t you think having to shut down an auto plant production line would result in an investigation into what caused the parts shortage?

Well, as you already know, this individual was indicted after the Avon Lake Police made some online tire pressure sensor purchases that were ultimately traced to the Ford Plant and the employee’s PayPal account. While very time consuming to piece it all together, in the end, the dots weren’t too difficult to connect.

When was the last time, you evaluated the inventory internal controls? Our forensic assessments can identify inventory related internal control weaknesses and provide valuable recommendations for enhancement.

Forensic assessments yield results. It is common to highlight the lack of scrutiny many mangers pay to inventory quantities on hand or to unusual usage.  In other instances, such valuable information is not produced or, at other times, it is put in a file and not forwarded to management.

In this day and age of technology, many plants have strategically installed cameras to deter and potentially detect employee theft of shop materials.  Is someone in the accounting department trained to closely monitor and identify line item variances reflected in the cost of goods section of the monthly income statement?

Shoring up your inventory internal controls cannot be overlooked just because the inventory item isn’t a commonly sold retail item. After all, and don’t kid yourself, everything in a shop or factory has value and is subject to theft – even tire pressure sensors!

For more information on forensic assessments, or other white collar crime topics, please contact Frank Suponcic, CPA, CFE, CFF, at 440-449-6800.

Fraud Prevention

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