No, it wasn’t a hijacking of a tractor-trailer loaded with $16 million worth of fruitcakes. (Not exactly a product that’s easy to fence.) Nor was it properly labeled a heist. Thieves who steal with a pen and a computer are called “white collar criminals” and their crime is embezzlement.
Missed this big crime in Corsicana in real time with the bust in 2013.
Sandy Jenkins was sentenced in federal court in Dallas Wednesday after pleading guilty in 2014 to charges connected with the embezzlement of nearly $17 million from Collin Street Bakery, where he was comptroller. He was sentenced to 10 years for each count of conspiracy to commit money laundering, mail fraud, and making a false statement to a financial institution. The sentences were ordered to be served concurrently.
You can read the reported details of how this grand embezzlement was perpetrated at the above link to the Corsicana Daily Sun. As well as the really stupid crap this thief purchased with over $17 million. (Hint: a much larger version of the husband/wife McDonnell and Jackson, Jr. duos.
The real story of how the bakery embezzler did it without being detected will not be published. (That would make it too easy to inspire a copycat thief.) However, it is an all too common story.
- A trusted employee of a family owned business.
- No annual CPA audit.
- Weak internal financial control systems.
- Extended period of time in which the embezzlement was perpetrated.
(Missing from this one is the dedicated employee that never takes a vacation.)
Number four is the stuff of nightmares for embezzlement loss control analysts. That’s how some small, almost petty individual thefts can add up. Consider this October 2013 LA Times report Theft case stuns Rialto schools:
An investigative firm hired by the Rialto Unified School District has so far found a “documented” loss of at least $1.8 million but warned it could reach as high as $3.16 million, including discrepancies that could not be documented. School records go back only to 2005.
In this case, some sort of justice was served. ABC7 reportFormer Rialto school accountant who stole $1.8M in lunch money released early from jail.
A former Rialto Unified School District accountant who embezzled at least $1.8 million in student lunch money has been released from prison after serving six months of her five-year sentence.
(Compare that “justice” with: Young black man jailed since April for alleged $5 theft found dead in cell (The Guardian report.)
Small businesses and operations, particularly non-profits, are particularly vulnerable to the “trusted employee” with sticky fingers. While a culture of trusting employees is admirable, it’s no substitute for proper financial management systems. Even the smallest of operations can avail themselves of a minimum level of separations of duties. I was once doing some bookkeeping and tax reporting for a teeny, tiny entity. At one point the principals suggested that they give me the checkbook. My response was, “Are you nuts?” They said, “We trust you.” To which, I said, “That’s irrelevant, and furthermore, anyone in my position that would willingly accept handling the cash and books is precisely the person you shouldn’t trust.”
In the Collin Street Bakery case, if over a million dollars a year could be pilfered, it is much too large not to have an annual CPA audit. Contrary to what some think, CPA’s don’t look for criminal activities in the course of an audit. It’s often more by accident than design when they detect embezzlement in the course of an audit. However, it would have been impossible for an auditor to balance the cash and bank accounts for this bakery which would have led to the discovery of the embezzlement in less than two years from when it began.
CPAs also check out the operating internal controls and make recommendations when they are weak or non-existent. Absent more details, it appears that the thief could issue, void, and send out checks and also do the monthly bank account reconciliation. IOW no separation of duties. A lower limit on the automatic check signing authority wouldn’t have prevented the theft, but might have reduced his total take or at least made it more cumbersome for him to steal in smaller chunks.
Two ancillary observations:
This controller was paid only $50,000 a year (and started at $25,000 fifteen years earlier). That’s low for someone with the proper skills/experience and level of responsibility such a job required. Not that higher compensation attracts employees that don’t steal, but it reduces employee resentment which is often a factor in employee theft.
An exceptionally high standard of living in comparison with an employee’s salary should be noted and in some way questioned. In this case, why would someone that claimed to have inherited a bundle continue working at such a relatively low paying job? Earning a fraction of what a casual observer could see that he and his wife were spending year after year. (The CIA was slow to note this in the case of the USSR spy Aldrich Ames)
btw — While I loathe thieves, but do like a good fruitcake.
NYTimes Justice Department Sets Sights on Wall Street Executives
Or maybe not:
Will the EPA get tougher than the Justice Dept?
NYTimes VW Is Said to Cheat on Diesel Emissions; U.S. to Order Big Recall
Poor consumers thought they could get both performance and meet low pollution emissions standards. Or maybe they were cool with VW cheating the regulations.
Bloomberg 9/23/15: VW Chief Winterkorn Steps Down After Emissions Scandal.
That was fast.
Also note from yesterday — NBC News: Ex-Peanut Exec Gets 28 Years in Prison for Deadly Salmonella Outbreak (Note: The CEO of Peanut Corporation of America was also the owner of the company.)
Ah, ’tis an old story, oft repeated, and destined to go on happening, alas. No one wants to believe that good old devoted So-and-So, pillar of the organization, could possibly betray them.
One minor quibble from this inveterate proofreader: when you wrote “it is much too small not to have an annual CPA audit” did you mean “too large”? Or “not too small”?
Yikes — thanks, that’s not a small flub and will change.
Oh, and it’s nice to know that someone reads my musings well enough to spot an error like this one.
While I cited the example of the school lunch money lady’s embezzlement, a few decades ago when I was well informed of the nationwide data, the rate public employee embezzlement was low compared to that in the private sector. According to accountants, the number one reason for small business failures was employee theft/embezzlement. Unlike large businesses, including banks, stock brokers, etc., small businesses don’t have much financial cushion for negative events and are un- or under-insured for employee theft. They also tend not to recognize that their largest exposure isn’t a lowly employee but a mid- to senior level employee that can pilfer serious money quickly.
Should also mention that one reason why the school lunch lady thief only served six months out of her five year sentence (in itself ridiculously low for the amount she stole) is that unlike other forms of thievery, restitution (repaying what was stolen) over time is possible and there are enforcers for it.
Perhaps that’s because they tend to regard lowly employees as a lesser breed, interchangeable peons prone to pilfering the stock or shorting the till, while management are, well, management — our kind; members of the righteous and worthy class.
The willful blindness of privilege takes many forms.
So true. We are trained to fear the “other” when under normal situations, those most likely to do us harm are those most like and closer to us.
What’s interesting about employee theft/embezzlement is that among mid-level and higher ranked employees the money they steal is always used to “live large” or cover gambling addictions. The stories among lower level employee theft are more varied and some much easier to understand.
I recall a high-end department store that had a serious inventory shrinkage problem. For some time they couldn’t figure out the who and how of the theft. It turned out that it was a long-term night janitor employee. He was stuffing clothing into the vacuum cleaner bag. At home he’s dust off the clothing, remove the tags, and sell the clothes at weekend garage sales to neighborhood people. Didn’t draw much attention because his customers had no idea that the goods were high quality at super bargain prices (5-10% of retail). What he spent the money on was sending his much loved and smart daughter to college. (This was back when student loans and grants were not so easy to come by, and his income was too low to qualify for the student loans that existed.) Others have stolen to cover crushing medical debts or obtain expensive medical treatments only available to those with higher means. IOW more like Jean Valjean’s first crime of stealing bread for his starving sister than Madoff’s theft for mansions, etc.
And yet it’s the penny ante thieves like that janitor who tend to pay a higher price, like jail time, than the upper echelon embezzlers, who are more likely to get off with losing their job (and a noncommittal recommendation for future employers) and perhaps some restitution.
Not so penny ante in the case of the janitor. In today’s dollars probably close to a quarter million. My understanding that he got off light considering the dollar value of the theft. But it was back before we got “tough on crime” for minorities and employee theft is always viewed as a lesser crime than other thefts.
May 2015 – A fugitive since 2009 embezzling charges, Lexington man arrested in Virginia
SB Nation — A Long Walk’s End Hammes spend a goodly portion of his fugitive years walking the Appalachian Trail.
Then there’s the good old Medicare/Medicaid fraud, often perpetrated by the higher-ups in the wealthcare system. This particular case occurred in my neighborhood and was combined with a delightful side order of addiction and death for some of the doctor’s patients.
Good find. He’ll serve less than half his sentence.
More galling is that the Feds were only able to reconstruct the financial cost of the fraud for the one year of 2007 and for which he is ordered to repay. The real number for his theft was likely a multiple of that number, and what will never been known is the physical, including addictions, costs to the patients.
We all pay for the criminal misdeeds of people like this. And overall, he’s probably still ahead for having perpetrated his fraud.
The Guardian: Surgeries by unlicensed assistant part of $150m insurance fraud, say prosecutors
This crap doesn’t happen in countries with socialized medicine and is probably rare in counties with more or less privatized, non-profit UHC. But health care in the US is exceptional — exceptionally expensive to cover all the profits in the delivery chain and fraud.