Working Smart with New Clients: Recognizing economic and emotional tolls

SPECIAL TO THE WEB

Robert Tie, CFE, CFP
Contributing Writer, Fraud Magazine

"Sadly, it’s always the employee that the company owner loves the best,” says Tiffany Couch, CFE, CPA, an ACFE faculty member and the founder and principal of Acuity Group, a forensic accounting firm in Vancouver, Wash.

Couch, of course, is referring to a trusted staff member who commits major fraud.   

The economic consequences of such betrayal can hit business owners hard but its emotional toll also can be potent. That explosive combination can confuse and nearly immobilize some victims, who aren’t sure what to do about an apparent — and, for them, a previously unthinkable — insider fraud.

“That’s why they should get the help they need,” Couch says. “The sooner a forensic specialist is involved, the better, because average business owners understandably don’t even know what not to do. Their layman missteps might jeopardize an investigation, hinder asset recovery or create legal liability for them, the victims.”

Couch’s own experience — working with federal, state and local law enforcement officials on embezzlement investigations — has taught her how important it is for CFEs to understand and attend to clients’ volatile feelings as well as their losses, especially in the first days after signs of a potential or confirmed fraud emerge.

STABBED IN THE BACK… AND IN THE HEART

“I grew up in a small agricultural community,” Couch says. “And you can take my word on this: Farmers are not known for shedding tears.”

But there are exceptions. One arose, and with good reason, when a potential client sought Couch’s help in a crisis.

A farmer who owned a large fruit-growing company had just learned that his controller — a 20-year employee and personal friend — had misappropriated a mountain of company cash. 

This embezzlement surfaced after the client had formed a partnership with another company, and he wanted the controller to train his counterpart at the new firm. During the joint review of the financials, the controller had failed to satisfactorily explain certain huge losses on the books. They were, in fact, the result of an ill-fated risky investment he had made — outside of established guidelines and without authorization — on the company’s behalf.

Prudently, the owner looked closer at the financials and asked the controller to provide the bank statement reconciliations. The controller complied and promptly went on vacation. The owner and his accountant examined the reconciliations and found the controller had made a suspicious $300,000 adjustment to the cash account.

The owner felt he had no choice, so he reluctantly notified the controller that he was immediately putting him on administrative leave pending an inquiry into the unauthorized investment and the questionable cash adjustment.

Nevertheless, after his vacation, the controller returned to work — accompanied by his attorney — who stunned the owner by saying, “My client has ‘borrowed’ $750,000 from your company’s accounts over the past several years. If you agree not to press charges, he’ll repay that ‘loan’ and cooperate with your investigation of this matter.”

A business associate of the owner recommended Couch’s firm; the owner phoned her and requested a forensic investigation as soon as possible.

“I took that call on Friday,” Couch recalls. “I could see this case required immediate attention to, among other things, secure potential evidence, so I went to the farmer’s office on Monday. By Wednesday, I had uncovered proof the losses were much worse than the controller had acknowledged: At least $1.2 million was missing — $500,000 more than he had admitted taking. Of course, this was the last thing any business owner would want to hear. So in addition to communicating the bad news, I had to counsel the farmer on how best to deal with the situation.”

That day Couch sat down with her new client and spelled out exactly how and why the controller’s story didn’t add up. To make matters worse, the controller’s concealment of his unauthorized transactions was suspicious, she told the farmer. Couch had expected him to be distressed by the additional bad news, but his intense reaction took her by surprise.

“That big, strapping man just broke down and wept,” Couch says. “His controller’s breach of faith devastated him. ‘How could it be?’ he asked. 'If I can’t trust him, I can’t trust anyone!’ I remember thinking, ‘This isn’t just about the money … it’s also about the relationship. He’s lost a lot more than $1.2 million.’ ”

Read the full article at Fraud-Magazine.com.