The Art of the Steal (12 page)

So the kid goes down to an office supplies store and buys some rice paper, the closest paper to currency paper you can buy, loads the paper into his color ink-jet printer, and prints out bills that look great. He could pass them anywhere. So he goes to the school cafeteria, buys his friends lunch, and the cashier doesn’t bat an eye. He takes a trip to the mall, and no one says a word. So he starts printing them all the time, and his parents no longer need to give him an allowance. He can give his parents an allowance.

Now, if your kid is more of a purist, he can try this scam. Go into a bank and ask to buy five hundred one-dollar bills. If the teller questions him about why he needs all of those singles, he can say, “Well, it’s not your business, but if you really want to know, our school has a school project and they take money at the commissary, and we need change.” He goes home and washes the bills in a washing machine with a bleach eradicator that washes all the ink off so they come out as blank bills. He scans a twenty-dollar bill, puts the bleached bills in the printer, and ink-jets twenties. Now he’s got real currency with inflated amounts on them. It’s a trick that started in Colombia and has been imported here.

Another common type of counterfeit bill is the paste-up bill. This is where a dollar bill is converted into, say, a twenty-dollar bill or a five into a fifty or a ten into a hundred. Most commonly, however, the paste-up artist converts ones into twenties, because they’re easiest to pass. The paste-up artist never changes the back of the bill, only the front. And all he changes are the denominations in the corners. The giveaway is that George Washington is still staring out from the center instead of Andrew Jackson, and there’s a one written across the seal. So it’s worth paying attention to who’s in the center when someone gives you a twenty-dollar bill.

One more thing kids love to do is copy five-dollar bills. They take the bills to a local copy shop. They place them on the machine and copy them right onto white bond paper. They only copy the front. They don’t bother with the back. Then they cut out the copies and go to the video arcade, the laundromat, or the car wash, or anywhere that has a change machine. All change machines work on the same principle. Inside the machine is an optical scanner, and it only scans one side. If a facsimile is within 5 percent tolerance, it goes through every time, and these copies make the cut.

FIGHTING FIRE WITH FIRE

The way we fight technology is with technology. Real money has always had its protective features that have made counterfeiting something of a challenge. Genuine money is printed, then engraved, then intaglio engraved, which gives it depth. The intaglio engraving is what makes it tough to duplicate. On real money, the portrait of the famous American in the middle looks three-dimensional. The eye sockets look sunken, the hairline recedes. This is three-dimensional engraving. On a counterfeit bill, these items appear flat, like a picture in a newspaper or a magazine. The real bills are printed on special paper made under government control; it’s fibrous and strong, and red and blue fibers are visible. Over the Treasury seal are tiny hash marks which make up the word or number of the bill’s denomination. On real money, you should be able to read the words on the seal clearly. Even on the best counterfeit bill, the hash marks become bars, making it difficult to discern the words of the seal.

But technology has overwhelmed these safeguards, and so the government has battled back with a new round of technology. In 1996, for the first time in seventy-two years, the government made changes in the currency. Over the last few years, these new bills have been introduced with additional security features. Then the government said, don’t worry, we won’t change them again for another twenty-five years. Actually, they’ll be changing them in 2003 to multicolored bills with additional safeguards, because technology has already found ways to defeat them.

The new bill is actually not a bad bill, but the problem is that the people who take it have no idea what to look for in order to gauge whether it’s real or fake. Management hasn’t taken the time to teach them. What management prefers to do is go out and buy them a cheap one-dollar pen. It tells them, just take this pen and mark the bill and if it stains then you know the bill’s good. That pen is ridiculous. All it has is a chemical that checks the Ph level of paper. That’s all it does. Money has a very high Ph level, because the paper is bleached white in order to engrave it. But so do about thirty-five hundred other stocks of paper that are sold at office supplies stores. And even if you didn’t have that paper, take a sponge, dip it in a pail of Clorox, wring it out, and pat it on the paper you’re using. When it dries, the paper will have the same Ph level.

We’ve become so utterly convinced of the authority of this pen. A clerk will run the pen over a bill and say to the customer, “Well, even though you’ve got a misspelling on this bill, as long as it’s got that mark on there, no problem, I’ll take it.”

WHAT TO DO

I tell people who handle a lot of money, take five minutes and learn the proper way to identify a genuine bill. Let’s consider the new hundred-dollar bill. To the right of the portrait of Ben Franklin is a registered mold watermark. When the bill is viewed above eye level, an image of Franklin appears on the far-right side of the bill, front and back. It shows up right away. If you have to hunt for it, you don’t have it. A counterfeiter cannot reproduce this watermark, for it requires a $200 million paper mill. There are only six in the world, and only one capable of doing it in the United States.

4

[THE THIEF
AT THE NEXT DESK
]

A
n auditor arrived for a routine review of the books at a foreign automotive company that had its offices in New Jersey. The office was one of those tall, angular buildings that seemed to be made entirely of glass. All morning, the man sifted through the voluminous records, matching invoices and payments, and everything seemed to be in good order. But there was one pattern that struck him as a little odd. There were quite a number of bills to replace windows—$600 for this window, $1,200 for that one, $800 for another. Was that normal? Was everyone who worked there a klutz? Well, he shrugged, the building was almost all glass. Glass cracks easily enough.

At lunchtime, he took a break and headed down to the company cafeteria. He selected a seat next to the windows so he could look out on the day. As he was munching on his sandwich, he happened to notice something that made him sit up straight: a date was stamped on the bottom left-hand corner of the glass that signified when the window had been put in. This one had been intact for years. He began to wonder. The auditor got up and proceeded to wander through the building, floor after floor, looking at nothing but windows and the little dates stamped on them. He couldn’t find a single one that had been replaced anytime recently.

The auditor confronted the head of maintenance with his findings, and, sure enough, the man was in cahoots with a glass maker in an ongoing embezzlement scheme. The glass maker sent invoices for “ghost” windows that the maintenance head approved. The company paid the bills, and the two of them split the proceeds. This had gone on undetected for a long time.

The maintenance head ended up being quietly fired. The only reason he wasn’t prosecuted was because the president of the company was paying him with company money to cut his lawn and do work on his house, and he didn’t want that getting out. Months later, when the auditor returned for his next audit, he happened to notice that the man was working at the building across the street. It was all glass.

A DUBIOUS DISTINCTION

There are a million ways that employees embezzle money from their employer, and to catch them it usually takes a stroke of luck like a keen-eyed auditor who happens to take his lunch by the window. And so it is small wonder that, at every imaginable type of business, from the corner deli, to the muffler shop, to the seafood restaurant, to the industrial parts maker, to the leaders of the Fortune 500, employee theft is escalating. Embezzlement has ranked as America’s No. 1 financial crime for more than thirty years, and I have no doubt that it will continue to hold that sorry distinction for many years to come. About a third of all the fraud that goes on in this country is embezzlement. Banks, for instance, lose five times more money to embezzlement than to armed robbery. Workplace larceny can be so devastating to the company that is victimized that almost a third of all bankruptcies are attributed to embezzlement.

The dimensions of the problem vastly exceed what the surveys indicate. Only about 10 percent of embezzlement cases ever get reported to the authorities. Many companies, leery of negative publicity, are loath to admit that they have been snookered by their own worker, and simply fire the employee and keep the incident under wraps. They just swallow the loss.

Embezzlement schemes can involve little thefts that run into the hundreds of dollars or large ones that run into the millions. No matter how small they are, they’re annoying to the victim. A toy store chain told me about a nimble little scam that had bedeviled one of its store managers. A cashier would peel off a UPC sticker from an inexpensive toy, something like a beanbag for $9.95. He’d stick it on the inside of his wrist. Then an accomplice would come to his register loaded up with forty- and fifty-dollar video games and other more expensive items. The cashier would pick up each of the purchases and swipe his wrist across the scanner while appearing to be swiping the product. So everything went through at $9.95. A sale that should have been hundreds of dollars was a fraction of that.

The main reason people steal is because of opportunity, followed by need and greed. One thing I always say is, if you make it easy for people to steal from you, they will. It’s a simple principle, but my years in the fraud business have proved to me that it holds true time and time again.

THE IRS IS YOUR FRIEND

Embezzlement fascinates me, because we know how to prevent it. For over one hundred years, the accounting tools have been in place. This is why we have auditors. This is why we conduct audits. This is why we have internal auditors. This is why we have due diligence. This is why we have best practices. This is why we have controls. This is why we have segregation of duties.

The problem today is, the bigger companies have become, the less controls they have. The more they merge with other companies, the fewer controls that stay in place. Accounting staffs that used to be six people are now one person. You can’t segregate duties with one person. If I have a bookkeeper who writes checks, signs checks, and reconciles checks for me, then it’s just a matter of time before I have a bookkeeper who steals from me. So today, we’ve taken all of those controls that we’ve learned in accounting for one hundred years and thrown them out the window.

Even if you catch an embezzler, don’t expect to get your money back. If you have an employee who stole $60,000 from you and you went to court and the employee pleaded guilty, he’ll get probation and there’s no restitution. You’re out $60,000, while he’s driving a brand-new car and living in a great house on the lake. There is one recourse. It’s rarely used, but it’s my favorite. If someone steals $60,000 from you, you can file a 1099 on that employee with the government. The 1099 is a wonderful tool. It gets you a write-off on your taxes of $60,000, and you may get as much as one-third of the money back from the IRS for reporting someone who failed to pay taxes on earned income, even if it was earned by theft. The IRS will go after the person, and it has the power to take his home, take his car, and garnish his wages, things that you don’t have the power to do even in a successful civil action. It’s always been my experience that the threat of a 1099 is far greater than the threat of a lawsuit or prosecution.

THE GUY NEXT DOOR

One thing to keep in mind is that the culprit is often the last person you would suspect. That’s the curious thing about embezzlement. It’s rarely the new worker who’s a total mystery to you. It’s not the guy with the shifty eyes and the sinister glare. Embezzlers are frequently some of the nicest people in the world. They’re the ones who sit at the next desk, who have lunch with you, who are in the adjacent pew at church on Sunday.

Far more often than not, the embezzler is the guy who’s been at the company forever and who you trust implicitly. That’s one of the reasons why embezzlements often persist for years without being detected. There was a recent case of a fifty-one-year-old woman that worked as a payroll and employee benefits administrator for a sizable Arizona plumbing company. She was very sociable, very well-liked, and very involved in the community. Everyone found it hard to believe when they discovered that over an eight-year period, she had embezzled nearly $2 million. Just about every week, she signed and cashed fraudulent insurance checks. She began her scheme practically the day she was hired. By the time she was caught, she was cashing checks at a rate of $40,000 a week.

Then there was the bookkeeper for a Manhattan magazine publisher. She was fifty-four, an esteemed senior employee, earning $150,000 a year. She decided to give herself a raise. She inserted her name as an additional payee in the books she kept. That gave her another $15,000 a year. Year after year, she added her name to more and more checks. After ten years had passed, she was receiving more than fifty checks, in amounts ranging between $15,000 and $75,000. Just like that, she was earning $1 million a year. By the time an audit finally caught her, she had embezzled something like $8.2 million.

Her lawyer claimed she had a psychological problem that compelled her to steal from the rich and give to the poor. It was pointed out that she sent much of the stolen funds to charities in the Philippines, where she was from. Perhaps. But she also happened to own expensive cars, homes in New Jersey, California, and Florida, real estate in the Philippines, and an entertainment and production company. So she was pretty charitable with herself.

ALL WORK AND NO PLAY

One of the weird things is, the harder someone works, the better the chance he could be an embezzler. Someone who never takes a vacation, stays late, comes in on weekends—that’s the person you have to wonder about. It may not be devotion to the company. It may be devotion to an embezzlement scheme. Often these schemes need daily, or at least weekly, maintenance to keep them from being detected. Any number of scams have come unraveled when the crook got sick and couldn’t get into work for several days. He can’t very well call up someone else at the office and say, “I’m under the weather, could you do me a favor and take care of covering my embezzlement scheme?”

Most embezzlement cases begin small. Everyone in his or her life has a desperate situation, whether it’s a child who’s sick, or an investment that went bad, or a gambling debt, and they need money. So they say to themselves, “I can take this ten thousand, and they’ll never know it. I’ll put it back as soon as I can.” But they never put it back, and ten becomes twenty, twenty becomes fifty, and fifty becomes a hundred thousand. Just like that, a small loss has snowballed into a large one. Greed and hunger change human character.

A common technique of embezzlers is known as “lapping” or check-kiting. It works like this: An employee with responsibility for recording payments will pocket a payment for an outstanding bill. He then covers the shortfall by applying part of a larger and later payment by a second customer to the incriminating invoice, thus “lapping” the two accounts. A payment from a third customer will then be used to cover the second account, and on and on. A skillfully done lapping scheme can keep the money flowing undetected for years, as long as the employee stays on top of it and doesn’t take time off. I heard about one guy who succeeded in lapping receipts for twenty-nine years, quite possibly a lapping record. He was basically a career lapper. He rarely took a day off, and his scam was only discovered when he no longer came in at all. He had reached retirement age.

A recent study by the Association of Certified Fraud Examiners offers an interesting picture of embezzlers. It found that fraud committed by managers was sixteen times greater than fraud by rank-and-file employees. Fraud losses caused by men were four times those caused by women. People sixty and older committed twenty-eight times the fraud committed by people twenty-five and under. The losses from workers with post-graduate degrees were five times as great as those caused by high school graduates.

When you think about it, this picture starts to make sense. In order to steal a lot of money from a company, you’ve got to be in a position of some power and trust. Otherwise, you don’t have access to the company’s assets. So that’s likely to be someone who’s well-educated and in a