Warning: Your Employees Could Be
Stealing Your Hard–Earned Profits
Because "No One Is Looking!"
October 6, 1997
San Jose Mercury News, Monday, November 11, 1996, Page 1A: "Gilbert and Cheryl Chavez lived the life of the rich and famous."
"They owned a $900,000 home in Saratoga. They had two Lear jets and a dozen expensive cars and boats. And they apparently thought little of chartering a plane to take friends and family to Hawaii, where they owned a nine–bedroom house on the beach."
"But it was hard to fathom how a couple such as the Chavezes could afford such grand style on the earnings of a former pipe fitter who quit his job and a bookkeeper paid less than $45,000 a year."
"Now authorities are charging that Cheryl Chavez stole as much as $18 million over an eight–year period from her boss, Carl Berg, a wealthy builder, high–tech capitalist and former owner of the San Jose Earthquakes soccer franchise."
Why Most Closely–Held Businesses Are Susceptible To Employee Theft.
Our computerized age is a blessing and a curse. The personal computer provides the means to improve individual productivity, enabling one person to do the work once done by many. Most businesses today use computerized accounting software to prepare their own financial statements, which are usually accepted by most banks with little question. Relying on one person for the financial operations of the business makes the business vulnerable to fraud, theft or embezzlement.
"No one is looking!"
The business owner(s) are usually swamped with handling the day–to–day chores of operating their business. They rely on the person in charge of the accounting, who might be called the bookkeeper, controller, business manager, etc., to keep the records, collect the accounts receivable from customers, and pay the bills.
In some cases, elaborate systems may be set up to protect the "hard assets" from employee theft (although this area is also widely neglected). But there is little thought given to the "right hand" person who is handling the business funds.
At one time, businesses hired CPA firms to perform financial statement audits. Although these audits are not designed to detect fraud, they were a deterrent, because at least someone was looking! Now the audits are usually viewed as an unnecessary expense. "Compilation" or "Review" CPA–prepared financial statements do not involve independent confirmation procedures as audited financial statements do. The CPA may be hired only to prepare the business income tax returns, or the income tax returns may be prepared internally using computerized tax preparation software. No one is carefully reviewing the accounting procedures of the business, including whether an internal control system is in place and functioning to protect the assets of the business.
Don't Be A Victim!
I have talked with business owners who have experienced large embezzlements. They have experienced near financial ruin, not to mention the emotional distress of a breach of trust, often with someone who has worked with them for years!
What Can You Do To Protect Yourself?
As a first step, meet with us to complete an Internal Control Checklist. This should only require about an hour and a half of your time. The meeting includes a report summarizing the conclusions of the meeting.
Based on the results of the meeting, you and we will develop a list of strengths and weaknesses and suggestions for improvement. You may decide that a more in–depth study is in order or that you would like a periodic internal control review. You may decide that you need assistance in implementing an improved system of internal controls.
Call Today For An Appointment!
You must agree the information we share is valuable, or we will waive the fee! The survival of your business and your family's finances depend on your protecting the assets of your business. Call Mike Gray at (408) 918–3161.
Cheryl Chavez, the former office manager for Silicon Valley builder and investor Carl Berg, pleaded no contest in March, 1998 to charges of embezzling $17.6 million. Her husband, Gilbert, claims he is innocent and is scheduled to travel this month.
For new articles about how to improve your business, subscribe to our newsletter, Michael Gray, CPA's Tax & Business Insight!
Home Introduction Seven Habits Business Improvement Book Reviews Need Help? Links