Wire me $1,000 from your business account! Are you thinking, that's a lot of money, we can't afford to wire you money? Yet, many small businesses, like your own, unknowingly lose thousands of dollars annually through fraud. Last Monday Sujata Sachdeva, Koss Corporation Vice President of Finance, was arrested by the FBI for embezzling $4.5 million from Koss in just a few months late this year. She was fired on Christmas Eve after a preliminary audit by Koss determined the fraud exceeded $20 million since 2006. Sachdeva's explanation? Addiction. Sachdeva claims she is a "shopaholic" or compulsive shopper, a clinical condition known as oniomania.
$20 million is a lot of money, and not every employee is a shopaholic, although studies report that as many as 10% of shoppers are. This article isn't about mega-dollar business fraud, embezzlement, publicly traded companies or oniomaniacs. This story is to bring awareness that business fraud can happen to any organization, in any amount and by those you trust.
The Koss embezzlement serves to exemplify that a highly regarded employee can commit workplace fraud even in what should be a tightly-controlled public company (KOSS.O), when something goes wrong in their life.
Sachdeva worked at Koss since 1992. Civic activity includes: local private university trustee, local community services charity board member and adjunct professor of law. She owns a home in an elite neighborhood of the upscale Mequon suburb of Milwaukee, Wisconsin with her husband, a prominent area medical doctor. The mid-40's executive earned more than $170,000 in 2009. This is not the profile of a bad employee or fraudster.
Many businesses, especially family run and small businesses are loath to consider the possibility of employee fraud. "We are one big happy family," "we all know each other" and "no one here would do anything like that" are common responses of business owners and managers when experts suggest that controls need to be put into place to deter and detect business fraud.
Embezzlement, such as Koss' Vice President Sachdeva's, to feed an addiction is not unique.
Rosemary Heinen embezzled $3.7 million from Starbucks in the late 1990's. She purchased several hundred Barbie Dolls and kept a collection of over 30 expensive sport and vintage cars a secret from her family. Heinen was arrested as she and her family debarked a plane in Seattle returning from a family vacation. She was given a four-year sentence even though psychiatric diagnosis showed a strong compulsion for shopping and severe depression. Heinen, the Starbuck's information technology manager at the time of the fraud, set up a fake consulting firm to which she paid large sums of money from Starbuck accounts.
The Rosemary Heinen Story
Elizabeth Roach, a shopaholic and a Chicago management consultant, pleaded guilty to wire fraud after she embezzled nearly a quarter million dollars from her employer. The money was used for clothing and jewelry shopping sprees at Marshall Fields and Barneys.
Brenda Rivard, a shopping addict, embezzled almost $3 million from her employer, Lube USA, when she was the corporate chief financial officer. She used the stolen funds to purchase mostly personal items including 2,400 articles of clothing, 850 pairs of shoes and 412 pieces of jewelry.
Businesses are not the only victims of embezzlers. A recent story by Religion News Service chronicles numerous crimes on religious organizations. Barry Herr embezzled more than a million dollars as treasurer of an Evangelical Lutheran Church in Pennsylvania to pay for his obsession with restoring classic cars.
Businesses and other organizations, such as not-for-profits and schools, are advised to put appropriate controls in place to help prevent employee fraud in the workplace. Doing so prevents employee dishonesty and temptations at work. Adhering to strong business ethics and best practices is likely to catch a situation sufficiently early to salvage an employee that suffers from an addiction. Having controls and an ethics program in place can also save the company from the public embarrassment that Koss, Starbucks and others suffered.
Many addictions lead to employee fraud. A few days ago, a branch manager of a North Carolina bank was charged with stealing $270,000 from Piedmont Bank and over $100,000 from her parents to support a gambling addiction. She was also charged with aggravated identity theft because she used bank customer identities to obtain $48,000 in loans (with another $91,000 in the loan approval process) and $26,000 from customer accounts.
Situations involving identity theft are covered by federal and state laws. The employer may be held responsible in these cases for not having appropriate identity theft fraud prevention controls. Any type of fraud wreaks havoc on the employers in terms of public relations, consumer confidence the valuation of the company and all the time and resources required to address the fraud at work with law enforcement and with stakeholders including customers and investors. For example, the NASDAQ halted trading of Koss stock until the company responded to inquires made by the exchange concerning the embezzlement.
Not all employee fraud involves the direct embezzlement of money as in the case of Koss. Employee fraud often involves stolen inventory, supplies, services and sensitive information—trade secrets, credit card information and Social Security numbers. Employees steal items from work that they can use at home, for gifts or to be sold for cash such as inventory and sensitive information.
Some employees may consider petty thievery and fraud as perquisites of their job. Many turn to fraud when they feel they are mistreated or undercompensated at work. There are many reasons why employees commit fraud on their employers, although none are justified. Employers should not preclude the possibility that fraud can occur in their organization regardless of their idealized perception of their workplace.
Comments
In many of these circumstances, someone in the company knows something is wrong, but they don't have a way to confidentially report it. In the Koss fraud, there had to be an accounting clerk somewhere that knew of these expenditures. But they didn't have a way to report it. More companies should use services like MyWhistle.com so their employees can report suspicious activity directly to the Board of Directors.
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