August 6, 2019

Encounters with Embezzlement

On this episode, James Kennedy and Garret Carragher discuss ways you can protect your company from embezzlement.
The Gross Profit Podcast
The Gross Profit Podcast
Encounters with Embezzlement

Show Notes

Theft and embezzlement are nothing new. As long as there has been wealth there have been people assigned to protect the wealth. The obvious flaw in this system was perhaps best stated by the Roman Poet Juvenal, who asked, “Who watches the watchers?”

Today we examine a prominent case of embezzlement, in which the financial director of a large bank embezzled €280,000. As James and Garret unpack this story, they’ll share the lessons we can all learn and how you can prevent this from happening to you. 

On this episode you’ll hear:

  • Different forms of embezzlement and theft that are prominent today
  • The story of a financial controller and how he embezzled €280,000 from a large bank
  • The definition of embezzlement and why it’s hard to spot
  • Ways to prevent embezzlement from happening in your company

If you’re looking to create a financial structure that is efficient yet safe, this is one episode you won’t want to miss. 


Transcription of This Episode

The gross profit podcast is your one stop shop on the path to profitability. Each week we share authentic advice on the positive, practical steps you can take to make the company you love more profitable. If you’re looking for a positive plan to help you avoid common spending mistakes, control costs, and increase your profits, then this is the place for you. I’m Ryan Cowden and this week we’re joined by our host James Kennedy of and Garrett Caragher. In this episode of the gross profit podcast, James and Garrett discuss how you can spot embezzlement and take steps to prevent it from happening at your company. Theft and embezzlement are nothing new. As long as there has been wealth, there have been people assigned to protect that wealth. The obvious flaw in the system was perhaps best stated by the Roman poet Juvenal who asked, “Who watches the watchers?” Today we examined a prominent case of embezzlement in which the financial director of a large bank embezzled 280,000 euros.

As James and Garrett unpack this story, they’ll share the lessons we can all learn and how you can prevent this from happening to you. On this episode you’ll hear different forms of embezzlement and theft that are prominent today. Cash skimming, payroll defrauding and redirecting funds are all ways people can take money and assets from your company.

Next we’ll hear the story of a financial controller and how he embezzled 280,000 euros from a large bank. We’ll hear how this individual was able to accomplish such a feat, as well as how he was caught and how his position of authority allowed him to do this undetected for a long period of time. Then we’ll discuss the definition of embezzlement and why it’s hard to spot. When companies with lots of financial tractions and lots of authorized purchasers, it can be very difficult to know which transactions are legitimate. And finally, James and Garrett, we’ll share some ways to prevent embezzlement from happening to you. It is wise to find ways to limit your purchasers, centralize your transactions, and have more than one person reviewing transactions. There’s a lot of actionable advice in this episode. So grab something to write with because you’re going to want to take notes. As always, I’ll be back on the other side to wrap up any loose ends. So without any further ado, here’s the conversation with James and Garrett.

Hello and welcome to the gross profit podcast with myself and James Kennedy, CEO of and Garret Caragher. Caragher has a long time experience as a industry accountant working for more than 20 years. And over that time he has seen everything, basically. For that reason, him and I are collaborating on a new book Profit Leaks, which you can get at where we go over a range of different spending mistakes and errors that any company can easily come across. And we provide some solutions for handling them. But today we are handling a specific topic. So what have we got, Garret?

Well today James we have a very exciting topic and one, I know a lot about and one that I actually have a personal story about, which I’m gonna talk about in a minute, but first of all, just to set the scene, we’re talking today about kind of people taking money from your business.

So that can be from anything from embezzlement to cash skimming to people maybe defrauding through the payroll system and overtime theft. So there’s a lot of kinds of issues. There are a lot of things affecting businesses because everybody knows cash is king in a business. It’s king. It’s the most important thing in a business. It really is the lifeblood of a business.

Yeah, and it’s been pretty fascinating actually doing the research on this chapter of the book, all the different ways that people have come up with of getting away with it or trying to get away with it. I guess the guys are really good, we never hear about, right? The perfect scam, you’ll never know about, but it still preyed-

Yeah, that’s right. You never really hear about the small businesses, but you hear a lot about the big businesses where the money is taken and large amounts of money are stolen, you know?

But do you… have you, I mean, no one wants set admit they’ve been embezzled or defrauded. I mean if it’s happened in a business that you’ve worked in, I guess the attitude is you just don’t want to talk about it. Move on. Don’t let anybody know. Kind of embarrassment about it, no?

Well, there can be where there’s… there’s always serious consequences on, and I just want to tell you a story now about somewhere where I was before on a particular course here in Ireland and actually, it turned out that one of the participants was actually involved in embezzlement. It really is an incredible story. So I was on a particular course here in Ireland a couple of years ago; was a business course. It was over six months. So on the course people were, were trying to set up businesses and we all had different ideas for what we were going to do and what kind of business we were set up.

I made friends with one of the people on the course, nice bloke from Dublin. He always looked a bit tired, but you know, I put that down to distress in trying to startup a business and I, I didn’t really think any more about it. I got to know him quite well. It seemed like a nice enough fellow. Anyway, we went on the course for six months. It ended, you know, I think it was right 2014, 2015 middle of 2015 around that time. So after that I’m still in touch with them by email and in touch with a few people who had been on the course. So I was trying to connect with them again to meet them up for coffee, and suddenly then I was getting a lot of funny emails from different peoples in. Have you heard about Mr. M he’s been in trouble.

I haven’t really heard anything about it. So I started looking up, googling on the, on the newspapers to my, really to my disbelief, it turned out he’d been embezzling from his previous employer, before he actually went in this course. And to give you a scale, an idea of the scale of how much money was actually been taken. It actually embezzled incredibly 280,000 euro.


Yeah. Yeah. Incredible amount of money. Now for some businesses that would be the end of the business. Now this business in particular was large business. It was actually a bank. Now when you think about banks, you think of anything, any business who would know about stopping embezzling the money it would be a bind, but there you go. I suppose it can just happen to anyone.

So now how was he able to do this, I suppose you’re wondering? Well in this particular organization he had a position of power, so he was actually the financial controller in the business. So either he really had a position of trust there. I really breached the trust then by taking the money, and the way he took the money out of the business was, I suppose as you kind of mentioned earlier, there’s new forms now or ways to take money from businesses. The cash was previously… people might’ve took cash out of the till, but now we have credit cards, we have PayPal, we have Stripe. And in fact, the way he was taking money was through… And taking money through his business credit card and also by manipulating PayPal transactions. So-


-quite a, yeah, quite an interesting story.

So he just moved the money to transactions that looked innocuous enough and just kind of shifted it around until eventually ended up in his PayPal account somehow.

Exactly. And the way he could get away with it is because he was a financial controller and I’m actually a financial controller myself in my current position. And with that comes a lot of trust, it comes a lot of autonomy, a lot of authority. So you get to be able to make purchases without too many questions being asked and that could be an issue. So it’s always important to have an authority matrix set up in any business, no matter the size, no matter the position of the people so that there’s more than one person really checking over.

But just that you know, what was he spending the money on? I suppose people are wondering. Well, believe it or not, he was actually, he wasn’t spending… He wasn’t spent on drugs. He wasn’t spending it on gambling, which can happen to a lot of people. It can be a sign if you see this kind of issues at work, but actually was spending the money on this time was on IT equipment, and purchasing of electronic items, so it was kind of an addiction I think he had. Not spending it on on gambling, but more just buying this IT equipment and he seem to be moving it on and selling it or I’m not sure what he did with it in the end.

How, I mean, how could you spend over quarter million euro on IT equipment? I know the iPhone is expensive now. Once you bought 200 of those you still got 20 grand to spend, or 50 grand to try and get rid of.

Obviously you haven’t tried hard enough. Have you not seen the new Apple Mac m stand for your monitor, which is like 1000 euro or maybe 1000 dollars on its own and it’s just a stand to hold your monitor. So there’s always ways to spend the money if you just think hard enough about it, you know?

Yeah, well maybe my current career is rubbing off on me. I just have an inbuilt aversion to anything more than 1000 euros and that’s crazy. We can’t possibly spend that on a, on a piece of product, on a piece of equipment such as for the business.

It is crazy isn’t it?

Did he get jail time for this or did he get a slap on the wrist or?

Yeah, so that’s the next point. It’s so interesting because you know, what is the penalty for this kind of act? You know, where does it lead to, you know, if you start going down this road and you’re, you’re, someone’s stealing money from a business, what’s the outcome? Like? Is it going to be driving off into the sunset in your Ferrari [inaudible 00:09:26], or thank God it’s not in fact because what happened to this particular person is he got three years in jail.

Now, I know that he was married. He had a young child at the time and so this was a big hit from rainy was very sad and he did appeal. I know he appealed and he got a reduce from three years down to, I think two years, but still that’s a long time to be away from your family, and the biggest effect, as I’m sure you realized is that now, as his qualification, his experience and his position had been in financial services that he can no longer get a job there. You’re totally finished.


And I know for myself that with the accountant qualification, the body will immediately review you by panel and you get reviewed by a panel and it will actually take away your qualification so he’s lost qualification. He can no longer get employment, so really is a lose-lose. The other person who’s losing out of course is it was the bank, they’d lost 280 grand. I’m sure some of the measures, they are also maybe got into significant trouble over this kind of breach of the lapse of the security protocols, not having the correct software in place to monitor procurement processes.

And they, my understanding is they only got 15 grand back in cash and they actually cost them another 50,000 euro in legal fees to-


-get their money back. So they don’t, yeah, wow is right. The only person who benefit from this was the solicitors because it’s a, it’s a loss for my friend or my previous colleague and it was a massive loss to the bank as well. So really it just kind of highlighted to people, the significance and effect that having embezzlement in your business can have.

His poor wife and his kids obviously, I mean maybe he starts off small and he gets away with it and then it grows and grows, I don’t know. I mean this, it’s hard to feel that bad for a bank at a human level because we all feel like banks are just can’t be destroyed and we bail them out when needs be and all that sort of stuff. But you know, if that happened in many businesses, it could have been the end for them. You know, could have been toast. So that is that embezzlement, it’s not what we know, embezzlement of what is, what is embezzlement?

What embezzlement is the taking or misappropriation of your funds that don’t belong to you, the funds do not belong to you. So this can be cash, it can be taking funds online and moving it from one account to another account as is in the example there with PayPal or maybe spending money on a credit card that you are not authorized, you know, for… unauthorized spend. So buying IT equipment, maybe paying yourself, but buying a holiday for yourself and your family or going and buying yourself new car, those kinds of things. So, but at the heart of it involves cash. That’s what we’re really talking about here, that’s what embezzlement is.

You’re working on the finance team and you see a credit card must be nightmares because you see all of these charges coming in and you have to make a call on, you know what they’re really for. And often times it’s very hard to tell I’d imagine. It’s hard to know exactly what each line is for. They all look kind of similar. A lot of places they just code them up and their job is done. But I can see where it’s quite easy. For example, you’re ordering from Amazon, it all comes in under from Amazon. You’re like, well, we buy stuff from Amazon. That’s probably fine. But hard to know whether that got delivered to you know, the business or someone’s house, or could very easily be either.

Yeah, this is a major problem and interesting enough, we were just tackling a recently in the business I work in, and you know I went through the number of credit cards, so we had 30 credit cards. Now the limits range from 1000 to 25 grand. Of that, the total limit on all the credit cards was $91,000. So, after reviewing the credit cards, what we did then was reviewed the spend on each of them. We decided then to reduce down the number of credit cards that we have ready, reduce it down to managers. And, the reason for this is that it reduces risk significantly. If you think about what people can spend, it reduces down the rest of people are going to spend money, but there’s also another risk, or another issue, which is a reduced down admin time and you say, well look it, I have people out there, they need to buy stuff, they need to buy this, they need to buy X, Y, and zed. The business needs to have this kind of flexibility where people can spend money as acquired.

But, we actually, what we’ve replaced the with is a bit of software. So what we can do then is if someone needs to buy a particular product item or stock item or a particular tool or equipment somewhere, what they can do is they can use bit of software to go in, stick up a PO. It gets ordered right, go through the right channels and then they get a PO number, which they can immediately pass on to the a supplier. I get the piece of equipment, you know, it’s super rare, you’re going to need something within 30 minutes. You know you’re going to need something like within a couple of hours-


 -at most and you can use the software then to do that. What that does is it significantly reduces the risk because with the authority matrix, which is just explain authority matrix is people can approve at different levels. So I can approve up to 1000, you can approve up to 10 grand spent, and someone else can approve up to 50 grand. So with the approval matrix, we know it’s approved. We know that people at the right levels of seeing the spend is coming and they’re happy with the spend, and second of all, they significantly reduces admin because we can download then from the software we can download what the spend has been, where should be allocated to and posted through.

So that’s one where we were, you know, personally I’ve been able to tackle that, reduce significantly reduced the risks.

But underlying that I guess is you need two sets of eyes or even if you know there’s going to be two sets of eyes on every purchase straight away that mitigates things. So people know you’re going to be observed. That guy got away with it I guess cause he was at the top of the totem pole and he could kind of hide the transactions. You didn’t think anything was going to be observed and that’s the key, right? Fundamentally whether it’s software or talking about our process where you know you’re being watched effectively, then that’ll do it.

That’s it. Yeah. The key is to have someone who’s reviewing everything, be that the operations manager, be it the financial controller, someone who you can trust, who can review the data that is coming true. And I suppose what happened in our example there, and the reason I suppose he got so much money is he was the financial controller.


So that was really significant breach of trust there. I’m sure it came to light when some of the ops people were going, I see that I bought 50 iPads. Where’s my 50 iPads? I don’t remember buying them. I don’t remember asking them. I don’t remember giving them to the team. No one has them. There’s no acid label on them.


We have like 50 iPads gone then, And I suppose that’s where he got caught at in the end when he’s reporting the accounts and suddenly someone’s going, you know, I don’t remember getting these. What’s this spend for, why is my IT spend up this month by 28,000 you know, what’s it for? What’s in there? Oh, that’s where he got caught at.

I remember setting up Procurement Express for folks, quite often you’ve got finance teams who are like, no, I don’t want to be able to raise any PO at all. They prefer not to be able to raise any requests. Some of them just to avoid for the avoidance of doubt, because they would be able to approve these things, so they prefer just not to be able to raise a request in the first place. Which makes sense. I think that’s a good strategy. Or at the very least, you should have at least two people on every request, even if it’s a small amount when you have a high authority like that. So what’s the other types of…. we’re writing this book at the moment. Actually you’d be able to get a free chapter. This chapter is just being completed. What were the other things that jumped out at you while we’re going through this over the last few weeks, getting people to be interested in and should watch out for.

Well I think that anecdote there, it gives you a good idea of what can happen in the worst case scenario for a business. So there’s lots of other things that can happen and we actually go through that in detail in the book. So you know when you get your chapter you can see, you can read about stuff like cash skimming… the oldest trick in the book. Taking money out of the till or pocketing some money in a retail situation like in a pub or in a cafe, a restaurant.

We can talk about payroll taps by going through detail and also we kind of covered or stuff in this chapter on a stock and property being stolen. So that’s not strictly embezzlement but it is assets being taken from a business. But what else you get ready to get in the chapter is we also cover up some ideas on risk analysis, how to understand risk and also kind of prevention control and reduction and ideas on tools you can use so how to prevent, how to detect issues, correct them on direction controls that will actually have people to go in the right direction, and make sure to do things correctly.

 Okay, good stuff. Thanks for that, Garret. You can get that sample chapter it costs nothing and it’s pretty, I think it could save you a lot hopefully so it’s well worth downloading and then you’d be also on the list for the full book. If you’re interested in purchasing that we’d be pretty happy to have you as customer. Thanks very much Garrett for taking time to talk to me today.

Don’t worry, thanks James. Good to sell it to you.

All right, well thanks for listening guys and we will see you or hear you the next time.

All right folks, there you have it. That wraps up the conversation between James Kennedy and Garrett Caragher. They shared a ton of valuable insights and advice today on how do identify embezzlement and adopt some best practices to prevent it from happening inside your own company. We also shared some tools and resources, which will all be linked up in the show notes. Don’t forget to click on one of those links to get a free chapter from the book Profit Leaks by James and Garrett. I hope you enjoyed our conversation. Please consider subscribing, sharing with a friend or leaving us a review in your favorite podcast directory. Until next time, best of luck in all that you do and we’ll look forward to seeing you on the next episode of The Gross Profit podcast.

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