This is probably more than you ever wanted to know, but here’s a description of a key accounting principle that was violated in so many ways in Dixon. Also why I hold the city officials at least partially responsible for what happened. Lax lax lax!!
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Years ago I rode in a h/j barn outside L.A. and a woman there won lottery $ and bought several nice horses. She also divorced her husband. As I recall it was rather nasty with much haggling over the lottery $.
Oh, you’ll enjoy the saga. It’s legendary.
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Interesting.
If you look at things only logically (facts) then anyone who is defrauded is partially at fault for being scammed.
In this particular situation, I think, like others have said, they trusted this person to be doing things the right way.
It costs big money to house and maintain medical for criminals. So after periods of time that is balanced against their danger to others.
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Well, I view an individual being defrauded somewhat differently than a so-called professional being defrauded. It’s easy to see how an individual could be taken advantage of - they may not have the knowledge or experience to avoid being scammed. A professional however should know better. Dixon had huge money problems while she was siphoning public money into her private funds - it’s just not clear that anyone questioned what was happening or how it was being done. Their auditors were crap too and certainly knew about separation of duties. Did they recommend walking through all the processes to see where the issues were? Nope, apparently they just took her word for it and sailed right on.
As often happens, the personal and the professional got all mixed up. We talk about this all the time on here re: barn owners and clients. It’s unhealthy especially when you are talking about really big bucks. So yes, I do hold the city officials responsible for not doing their jobs.
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As someone who knows a number of business owners that employee or contract with bookkeepers, who is aware of financial fraud risks and how it happens, who had many years in financial positions in businesses myself …
You are absolutely right. But.
The smaller the business or gov’t entity, the more personal the business relationships seem to be. One manipulative person can win over the professional, experienced, smart business owner. And make it emotionally extremely difficult to confront her (it’s usually a her, but not always).
Even to suggest a change to a better, more financially sound and recommended process. The bookeeper is wounded to the core at the suggested lack of trust in her.
But in truth – the bookkeeper should be advocating for a separation of duties. Should be glad for sound financial processes. Because: It protects the bookkeeper, too! Money is missing? Accounts don’t make sense? The bookkeeper is the first place to look. But is less vulnerable if good process are in place.
When the business owner’s spouse or adult child decides to take advantage of the ‘free money’, correct bookkeeping / accounting processes help to protect the bookkeeper / accountant / controller from being unfairly charged with it.
Y’all who are not from Texas may not be aware of the iconic landmark Collin Street Bakery in Corsicana, which has a mail order business allowing us all to send stunningly delicious fruitcakes to everyone we know or are related to at Christmas – fruitcakes that you want to eat the entire thing at one sitting.
Everyone who works there is like family, in addition to the ones who actually are family.
That family feeling is how their controller stole $16 MILLION from the bakery over apprx. 9 years, without suspicion. Almost ran the bakery into bankruptcy. Basically the bakery was profitable – but only for him and his wife. They spent lavishly. They were the Rita Dixon of small business.
Everyone loved the Jenkins. The nicest people. The best Christmas parties in their elegant home. All that “inherited money” paid for their luxury vacations, cars, etc.
Unlike most business owners who hide these problems, Collin Street Bakery actually has the story on their own website. There is also a far more succinct wikipedia page about it.
Looking at this crime through a lens focused on the accused, embezzlement is a crime of greed and desire. Shift that focus to view the victims of embezzlement, and the opinions are not much kinder—gullible, naive, and foolish are words typically ascribed to the wronged. Lacking in both these top-level assessments of embezzlement is empathy.
The harsh reality of embezzlement doesn’t seem to inspire the public sense of empathy other victims of crimes can expect to receive. Judgment rains hard on the victim, encouraging the crime’s casualties to feel as ashamed and embarrassed as the perpetrator.
The bakery’s detailed description of the crime includes a lot of analysis from their own personal standpoint. They still don’t understand everything about the why of the crime, but they have a lot of insight into why they didn’t see it earlier.
From the bakery’s website page …
Corsicana is just a trusting community filled with hard-working, honest folks. What some might call naivety, we call faith—faith that your neighbor does unto you what you’d do unto them. We had to learn that not everyone is worthy of this innate trust. We don’t regret trusting Sandy, but it has led to us modifying our credo—start with trust and then double-check.
Embezzlement is a more common crime than we are led to believe.
Essentially, the fruitcake industry was going through a rough patch. And from a thirty thousand foot view of our finances, the books backed that assessment.
From the leadership’s perspective, it would look like the bakery was spinning its wheels, working very hard to get nowhere—when in fact, the marketing had worked, it just wasn’t showing.
Month after month, the bakery reported losses, convinced there had to be something wrong, but unable to locate the cause.
When Sandy finally went to trial and the complete list of charges was laid bare, the enormity of the crime was heartstopping.
“The company really set itself up for an embezzlement,” commented Phil Stambeck. Remember, Phil is the former white-collar prosecutor we mentioned above. “[The company] committed the cardinal sin of having one person that approved the claims and also signed the checks.”
Embezzlement being far more common that most people know, or suspect, is very, very true. There are no stats to support this, but I strongly suspect that most embezzlers are never caught. They manage to manipulate situations to stay on the good side of the trust that has been placed in them.
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With a lot of small towns, I can easily see this happening. Mayors get voted in because people like them, and they win an election, often times not because they have any qualifying background. So maybe they don’t even know how to look for something like this, and they just trust the people who have been doing that job for years. I did watch the American Greed special, and that mayor that was highlighted was one of, what, three that were there during the Queen’s reign?
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The linked Collins Bakery article is a good read. Thank you for posting it.
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Bookkeeper for small company since 1999 weighing in here- every month - all of our bank statements, our Sales Journal and cash receipts journal go to a CPA who then generates profit and loss statements, etc. they also do our payroll and generate employee utilization reports. Every check I write is coded to an expense, same with credit card statements.
If something is off, they catch it. I can’t imagine operating any other way.
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That is the way to do it.
I am constantly shocked at how casual small family-run businesses often are about their most important financial functions. The person doing it sometimes has little or no training. And no oversight. It is often a mess. For years. As long as the business stays in the same hands, this sometimes doesn’t change.
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I am a bookkeeper for our medium-sized apprenticeship program. We have solid checks and balances, but I have been trying to get my boss to watch All the Queen’s Horses for years. Just so he can see how it can happen (I’m not leaving, but I won’t be there forever).
Another apprenticeship just arrested their bookkeeper for fraud and embezzlement, so it can happen even if you think you’ve got it all covered.
Edited to add: we were talking about the arrested bookkeeper a few months ago, which brought up Rita. My boss looked out the window at my 30 year old Dodge with the peeling clearcoat, looked at me, and said ‘I think we’re okay’. 
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Back when I was an accountant, I was doing temp work for a while and was offered an assignment for a small business who had been ripped off by their controller. The job was for three months to do all the forensic accounting to compile the embezzlement evidence, and to set up a better way to go forward. They realized they were being ripped off because they should have been profitable, but they weren’t. The partners that owned it finally got suspicious and intercepted a bank statement and canceled checks and saw that checks were being kited regularly. Until that point, the controller (who was the only accounting employee) wrote the checks, gave them to the partners to sign, then altered them, changing amounts and payees. She received all the bank statements and canceled checks.
I was happy to assemble the evidence to prosecute her ass. The partners were very nice people who had done a lot for her, including fronting money to bail one of her offspring out of jail periodically and paying for the funeral for her other offspring who ODed. I told them that they would always have to be the ones who received bank statements and canceled checks going forward, and they needed to spot check accounting entries, no matter how much they trusted their next controller.
They offered me the controller’s job, but it wasn’t a good location for me, and the salary was far lower than what I could earn elsewhere. It was too bad as their business was repairing railroad cars, and they were located right next to a train yard. That environment would have been great for me because I love trains. It was an interesting experience.
Rebecca
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She was a really good hand and did come up through the smaller shows.
People just speculated about where here money came from - inheritance and stock market were the two biggest ones.
yep.
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Non profits and professional associations are frequent targets too.
When we (volunteer board for the above) discovered that our Executive Officer (the only paid employee, just the nicest person, everyone’s friend, so helpful in taking on responsibilities for all kinds of things,) had been quietly ripping us off, to the tune of a quarter million dollars over a number of years, the local police were less than helpful or sympathetic. She skipped town and got away with it completely.
Her immediate replacement was mortally offended that we felt the need to verify her spending and limit her access to funds. Fortunately, the subsequent replacement gets it.
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Any financial person being mortally offended at the idea that they need to follow good practice is one of the biggest red flags.
Also re personal income and wealth … I hate to say that financial people need to live on respectable middle class budgets, to help reinforce their honesty. And certainly there are qualified, good financial people who do have independent means, and the right to enjoy it.
That said – a financial employee who spends lavishly is a red flag for possible chicanery. It isn’t proof, by any means! They could be honest, diligent and hard-working. But in so many scams, yes they are excessively and visibly enjoying an outsize lifestyle, and it was noticed by the firm.
It seems that many embezzlers may claim that they are paying for grandma’s cancer treatment, or their kids’ private education … but in fact it is very often found that this is not where the money is primarily going. It is going to the fully outfitted new truck, the luxury vacation, and other one-off or full-lifestyle extravagances.
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In the couple of years after the Rita Crundwell reveal, there was a sudden zeal for checking out financial processes, even doing fraud audits, across a great many small and large government offices of all kinds.
And a plethora of small-time embezzlers were outed – I remember this well from all the tiny towns around where I was living. In many cases the embezzler may have taken only a few thousand in the smaller schools and offices. But embezzlement was going on with a disheartening frequency.
That is why I think that embezzlement is far, far more common than anyone is comfortable with admitting. I think most embezzlers get away with it. Because no one really checks – because no one wants to believe it.
For this reason some small businesses think they are keeping themselves safe by having a family member do the finances. But it is sad how often those family members are stealing from the family coffers.
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