Fraud: Its Ripple Effects on the Entire Community

Case Overview:

• Discusses a troubling case of corporate fraud involving a bookkeeper at Paul Patrick Electric, a small company that lost over $1.3 million through embezzlement over three to four years.

Key Takeaways:

• Impact on the company’s finances and employees:
  • The embezzler stole approximately $300,000 per year.
  • This amount represented 30% of the company's annual profit (assuming a 20% profit margin on $4 million in revenue).
  • Results in less funding for hiring new employees, giving raises, and marketing efforts.

Ripple Effects on the Community:

• The disappearance of funds affects community support, such as:
  • Donations to local schools and sports teams.
  • Sponsorships of community events, leading to an invisible impact on local resources and opportunities.

Fraud Prevention Insights:

• Importance of monitoring financial access:
  • Implement checks and balances, such as requiring more than one person to access financial records.
  • Ensure bookkeepers take vacations to allow for audits and reviews.
  • Redirect mail to someone other than the bookkeeper to avoid concealment of fraudulent activity.

Best Practices for Small Businesses:

• Emphasizes the need for best practices to catch fraud early, including:
  • Understanding the fraud triangle—recognizing that trusted individuals may still pose a risk.
  • Awareness of the potential for embezzlement in small companies.

Resources:

• Invitation to contact for more in-depth conversations with investigators or to learn about investigative services.
• Encouragement to explore more videos for additional insights into corporate fraud and related topics.

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Okay, here's another troubling case of corporate fraud embezzlement where a bookkeeper at a relatively small company stole over a million dollars from their employer over the course of three or four years. There's a lot of takeaways from this, not only the fact that the person stole money and they could have been caught earlier, but what are the ripple effects of this? What effects does it have on the employees, other employees of that company, the vendors, the community? So $1.3 million is a lot of money.

It happened from 2019 to 2023, so let's call it four years. On average, that's about $300,000 per year, let's say $25,000 to $30,000 a month on average. This was an electric company, Paul Patrick Electric. The fact that it's named Paul Patrick means that it's probably like a mom-and-pop type company; it's probably not a big corporate enterprise. You know, a company like that may do, you know, four or five million a year in revenue. Companies of that size usually have about a 20% profit margin. So if you do, let's say, $4 million a year and you have a profit margin of 20%, that means you have a million dollars a year profit. If this person stole $300,000 a year, they stole 30% of that company's profit.

What does that mean for the company? It's less money to hire new employees, it's less money to give raises to existing employees, it's less money to do marketing and advertising. This company may have been able to grow faster had they had that extra money. Think about it: if you're a company and you know a million dollars a year profit sounds like a lot, and it is, right? It's not middle class; it's upper middle class. However, if you had that extra $300,000 a year, what could you do with it? You could hire three $60,000 employees, and that not only spends half of it; you could spend another maybe $60,000 or $70,000 on more marketing and advertising and then maybe another $660,000 on new equipment, facilities, upgraded trucks, and still have $40,000 or $50,000 left over to put in the bank for cash.

So that $300,000 represents a huge opportunity cost for that business and also the community. Companies like this typically donate to, you know, their local high school, to their local sports teams; they sponsor things. Having that money disappear could have more of an invisible effect on the community. That's why it's important to catch these early.

This was the company's bookkeeper who had access to the finances. Look, you need to have people accessing your finances if you're a small company, but what you want to do is have that access be monitored. You want to have more than one person with access to finances so that somebody else could see what's happening. You want to make sure that bookkeepers take vacations. You want to make sure the mail goes to somebody other than who's doing the books. There are a lot of simple best practices. We see these fraud cases all the time, and in almost every single case, there was something that could have been done to catch it earlier.

I know hindsight's 20/20; I'm not saying you put the blame on the business, but I'm just trying to put a warning out there for companies to use best practices. Even if you trust a person, understanding the fraud triangle means that sometimes people that you trust can still be in a position to have to steal money. If you have other questions, you can contact the link below for more deep conversations with one of our investigators or information about investigative services. If you found this video helpful, be sure to click on other videos on our channel to see if there's further information that could give you more insight into resolving your particular situation.