KANSAS CITY, Kan. - It was not a very funny Valentine. Catherine Zickel probably spent Valentine’s Day 2008 thinking about her guilty plea on embezzlement charges the day before in federal court in Kansas City. The former bookkeeper for Niehoff/Dunco Heating and Cooling admitted to embezzling more than $265,000 on checks drawn on her employer’s bank account. The crimes occurred over a three-year period from 2003 to 2006. She faces up to 20 years in prison and has agreed to pay back over $256,000.
Her boss, Wayne Duncan, almost went out of business because of the crime. He had to refinance his home and take out numerous bank loans to keep the business afloat. He learned a valuable lesson from the painful experience.
“It was kind of my fault,” he said. “She worked for me for a few years before this started to happen. She was even a friend. So I trusted her. There was no need for anyone to check what she was doing.
“She handled accounts payable and accounts receivable, as well as rectifying the bank account. I would give that same job to someone else again but I would make sure someone else was double checking the work.”
Sadly, Zickel’s crime is not uncommon among many small businesses, and the HVAC trade is not immune to this problem. Embezzlement, such as what happened at Niehoff/Dunco Heating and Cooling, is one part of a two-part problem. The other is actual theft of company property.
The temptation to make a quick buck on property such as copper tubing is a lure some employees can’t resist. One contractor recently told the story of two employees who were stealing copper tubing and reselling it to the local scrap yard.
Their theft was caught during a routine inventory of company parts and equipment. Without the inventory, the theft may have gone unnoticed. That same company now runs inventory checks twice a month.
Although there are likely to be some warning signs, it is not always easy to tell if an employee is stealing. The most trusted employee might be putting on a good front to mask many serious problems in his or her professional or personal life.
The U.S. Chamber of Commerce lists six warning signs to watch for:
• Increase in overall sales returns might represent a concealment of accounts receivable payments.
• Unusual bad-debt write-offs could be covering up a fraudulent scheme; a decline or unusually small increase in cash or credit sales could mean that some sales are not being recorded.
• Bounced business checks could indicate that funds are being siphoned out of your bank account.
• Inventory shortages could indicate fictitious purchases, unrecorded sales, or employee pilferage.
• Profit declines and increases in expenses could be a sign that cash is being siphoned off illegitimately.
• Slow collections can be a device to mask embezzlement.
The Department of Internal Auditing at Colorado State University published a more comprehensive list of the 20 “danger signs of embezzlement” and are included in the accompanying sidebar article below.
HVAC CONTRACTOR EXPERIENCESThere is a lot of embezzlement stories passed around among HVAC contractors, either in private conversation or during open meetings. Some of these include a man who mixed his own invoices, such as general car repairs in with the several truck repair/maintenance bills that his employer paid for the fleet of company vehicles each month.
The same person was also buying expensive meat and liquor from a retail store that sold a lot of office supplies to his employer each month. The embezzler was able to pay the account online before the purchases were scrutinized - if they were scrutinized at all.
Terry Boone, owner of Perfect Air of Abingdon, Va., who has been featured several times inThe NEWS, was a victim of embezzlement - twice. His trusting nature made him a target for two people within a short time frame.
“The first time it was the girl who was taking checks that should have went into account receivables,” Boone said.
“When depositing them she was writing an amount in the ‘less cash’ column and getting some of the deposit back as cash. The deposit ticket at the office showed that it was all deposited. It only took a couple of months before the discrepancy was obvious.
“During the last month, she had taken checks from the back of the checkbook and written them to her insurance company and to a couple of utilities for her personal bills. The total was about $2,800 that I could say for sure was taken. There may have been some more smaller jobs that we received cash payment for that were never recorded in accounts receivable and that she pocketed.”
Lightning struck again soon afterward. “I had done a job for $2,200 and the man had written me a check for $1,400 and gave me $800 in cash,” Boone said. “I was not checking the deposits and was going out of town a couple of days later. Something just told me to check on it so I told my new bookkeeper to do an accounts receivable report for me. Sure enough it showed that there was an outstanding balance of $800 on the job in question.
“I asked her why it was still showing a balance and she said something about how it was late when she deposited it and it probably just hadn’t been posted so I told her that I was going to go to the bank and see what was going on. While we were in the bank she called me and admitted taking it. She was behind on her rent and about to be evicted. She has since repaid the full amount and still works part time for me. I check all deposits and accounts receivables now.”
Boone believes in giving someone a second chance, but a lot of other employees who steal are not so lucky. Some are prosecuted, while others are fired.
An employee who worked for Dave Hutchins of Bay Area A/C of Crystal River, Fla., apparently liked to pay his bar tabs in unconventional ways and wound up in the unemployment line. “I caught a tech who stole and installed a 5-ton compressor in a local bar for a $250 bar tab,” Hutchins said.
“We actually could have prosecuted but the detective talked me out of doing it. I now wish I had as the tech’s company cell phone rang for 30 days, with calls from almost every bar and restaurant in the area.
“On top of that he told everyone he had the chance to that we fired him for asking for a raise. We found two more jobs where we are sure he stole parts from us, but there were no serial numbers on the equipment and we couldn’t prove it.”
Russ Donnici,NEWS’contractor consultant and owner of Mechanical Air Systems, San Jose, Calif., said the urge to buy a car was motivation for one of his former employees to steal money from his business.
“This girl ran our vendor checks so she had access to our computer checks,” he said. “A couple of suspicious checks turned up. We received a call from a car dealer who had taken one check (it was signed over to them) in payment for a used car. Afterwards he called to verify the check and was informed it was stolen. He was able to locate the car and repossess it. The person who used the check, not our previous employee, went back and claimed it was a legit check so he called me, saying the woman wanted to talk to me. I told him I would talk to her but he should call the police while I was talking to her.
“She was trying to con me that it was good check and that she worked for a temp agency we used. She couldn’t explain why the check was not made out to the temp agency or the fact that we had never used a temp agency. She got irate and said I didn’t even know what was going on in my own company. The police arrived and she was arrested. She bailed out and was never found again.”
Donnici said one good way to discourage theft is to use polygraph testing - or the threat of using polygraph testing. Although polygraph testing is usually inadmissible as evidence in court, it can make a person think twice about stealing.
“While on vacation one year, one of my renters came in and paid their rent in cash,” Donnici said. “I was told the cash was put in my desk, but it wasn’t there when I returned. Nobody would admit to it so I called my attorney and he directed me to a private investigator that started giving polygraph tests. Everyone agreed to take one although they were not mandatory because most wanted to know who took the money.
“The thief finally owned up to it after she was strapped up to the machine. We didn’t press charges since she reimbursed us.”
Some people are just brazen about their crime. They don’t try to be too sneaky or too clever - they just assume that no one is going to double-check their work. That is what happened with an office manager who worked for Larry Sinn of The Service Co., Greer, S.C. “We had an employee who stole $600,000 over five years,” he said. “She had set up an account with the same initials as our company and just took the checks. She did not have authority to write checks.”
Cash and equipment are not the only targets of theft either. Employee records and company manuals/software are routinely stolen. One contractor spoke of an employee of a temporary agency that stole a laptop, which contained many of the company’s confidential records.
Another, Donnici, told about an employee who made copies of his company’s employee manual and attempted to do the same with information in the company’s Shafer’s Service Systems software.
“This disk held a copy of our integrated accounting, inventory, and dispatch programs but none of the data files,” Donnici said. “The employee then applied for a job with a contractor who called me about her explanation of why she had the materials. She claimed she had created the manuals herself and that the software disk was actually hers and was a full system working demo that could be used.
“I met the contractor and he gave the stuff back and she was prosecuted for grand theft and did some actual jail time. The Shafer’s disk was the actual real program but was encrypted so no one could have used it.”
Regular inventory, double-checks, and encryption are among the many ways to curtail employee embezzlement and theft. It is apparent that good old trust is not a good enough detriment to criminal activity.
Sidebar: Twenty Danger Signs of EmbezzlementFrom the Colorado State University System Department of Internal Auditing:
1.Borrowing small amounts from fellow employees.
2.Placing personal checks in change funds, undated, postdated, or requesting others to “hold” checks.
3.Personal checks cashed and returned for irregular reasons.
4.Collectors or creditors appearing at the place of business, and excessive use of telephone to “stall off” creditors.
5.Placing unauthorized IOUs in change funds, or prevailing on others in authority to accept IOUs for small, short-term loans.
6.Inclination toward covering up inefficiencies or “plugging” figures.
7.Pronounced criticism of others, endeavoring to divert suspicion.
8.Replying to questions with unreasonable explanations.
9.Gambling in any form beyond ability to stand the loss.
10.Excessive drinking and night clubbing or associating with questionable characters.
11.Buying or otherwise acquiring through “business” channels expensive automobiles and extravagant household furnishings.
12.Explaining a higher standard of living as money left from an estate.
13.Getting annoyed at reasonable questioning.
14.Refusing to leave custody of records during day; working overtime regularly.
15.Refusing to take vacations and shunning promotions for fear of detection.
16.Constant association with, and entertainment by, a member of a supplier’s staff.
17.Carrying an unusually large bank balance, or heavy buying of securities.
18.Extended illness of self or family, usually without a plan of debt liquidation.
19.Bragging about exploits, and/or carrying unusual amounts of money.
20.Rewriting records under guise of neatness in presentation.