In the latest Weekly Wright Report:
Who is Controlling your Corporate Pocketbook?
It happened again, this time in Connecticut. Another greedy employee stole from the company. The unassuming victim was a BMW dealership. The perpetrator was the controller.
Just 50 business days after Vanessa Vence-Small began working for her employer in October 2014, she began to take home much more than her $150,000 annual salary. It didn’t take her long to learn that there was little managerial oversight for her position. No one was looking over her shoulder to watch her daily moves. She was trusted.
Over three years, Vence-Small stole $1.1 million from her employer. She used this money to finance her cosmetic surgery, travel first-class to Jamaica, Australia, Hawaii and Mexico, purchase a $50,000 vehicle, pay for a designer wardrobe, and remodel and landscape her private residence.
A forensic audit showed that Vence-Small stole $904,659 through 65 unauthorized electronic funds transfers from the BMW dealership’s bank account, with the money going into her personal American Express account. She also wrote 28 checks totaling $207,778 to pay her credit card bills, and was responsible for $31,452 in unauthorized reimbursements and credit card expenditures.
Vence-Small was able to get away with it for so long because she always seemed to have the answers. Paula Callari, President of the BMW dealership said as part of a witness impact statement, “We had to let go of many people and changed several pay plans. But month after month, nothing seemed to change and no one could figure out why. She had an answer for everything but would reassure me that things will be so much better by year-end.” “Vanessa thrived on making it seem like she was being the hero and pointing out our flaws to improve them, while she was seeing the opportunities of how to steal from us.”
On February 4, 2019, Vence-Small will begin her 30-month prison term followed by 3 years of supervised probation.
Sadly, this was not Vence-Small’s first time embezzling from an employer. Prosecutors in the case stated that Vence-Small had a “history of financial improprieties with at least two prior employers.” She was terminated from both and never prosecuted in either case. According to a court filing, one of her former employers was a Honda dealership in New York.
Forensic auditors report that in nearly one-third of financial fraud cases, the victim organization lacked the appropriate internal controls to prevent the fraud. Theft could have been prevented if managers had done a sufficient job of reviewing transactions, accounts or processes.
There are also common behavioral indicators exhibited by perpetrators. For example, approximately half live beyond their means while the fraud occurs. This seems to account for the behaviors of Vence-Small who traveled first class with her husband to 4 countries in 3 years while she rehabbed her home, bought a new car, wore designer clothing and underwent plastic surgery. Although $150,000 is a decent annual salary, it’s probably insufficient to cover the costs of that type of extravagant lifestyle plus presumably all or half of the regular household expenses.
Other common red flags include displaying control issues or an unwillingness to share duties and intimidating colleagues. This tends to be the employee who never takes vacation, refuses to delegate, and doesn’t trust anyone else to handle an assignment as well as her.
Any company can be a victim. Avoidance starts by doing a good background check on a candidate who you wish to hire for any accounting or financial position. This includes calling prior employers, and running credit checks and criminal histories. Certain state and local laws dictate when you can run these reports and what advanced authorizations are required. Perhaps information could have been learned about one or both of Vance-Small’s financial improprieties through her prior employers.
There is no better time for a business owner to understand their company’s finances, budgets and to review controls for check writing, bank reconciliations, credit card expenditures, vendor lists, and understand who has access to bank accounts. Consider bringing in an accountant or auditor to teach you what you don’t know. Don’t let pride or a lack of understanding get in the way of your company becoming the next victim.
(This article is printed with permission from The Daily Record.)
Misery Loves Company; Your Subcontractor’s Employees are Your Problem Too
by Don Walsh
I was presenting at a seminar recently with numerous government contractors and one of the participants was explaining a problem he had with monitoring his subcontractor’s compliance on a federal project. He mentioned that “I don’t really worry about whether my sub is paying his employees, because that is his problem, not mine.” There was a collective audible gasp in the audience as many understood that this contractor was unaware that he still held legal responsibility for those wages even when his subcontractors were not paying their employees appropriately. As Maryland approaches a $15 minimum wage, the stakes for this dual liability for a subcontractor’s mistakes were ratcheted up tremendously.
Under a variety of statutes and legal theories, prime contractors may be held jointly and severally liable for wage and hour violations of their subcontractors. Although frequently it involves allegations the two are joint employers because of control issues, as many contractors in the construction arena are aware, federal projects governed by the Davis-Bacon Act (DBA) make prime or higher tier contractors jointly and severally liable for violations by their subcontractors. Failure of a subcontractor to pay appropriate wages may leave a prime contractor responsible for the unpaid or improperly paid wages, possible treble damages and attorneys’ fees incurred by the unpaid employees. Even worst, a prime contractor may face government penalties as well as possible debarment from further government contracting. This exposure is not isolated to Federal projects. Many states, including DC and Maryland, have wage laws which mirror the imposition of liability for subcontractor defalcations on prime contractors.
Under these scenarios, contractors must ensure that there are mandatory wage compliance provisions in any subcontracts and need to take measures to test and measure compliance on a regular basis by ensuring certifications are received from subcontractors that employees are properly classified, are paid timely, are paid proper regular and overtime wages, and that subcontractors are accurately tracking all hours worked. Having good subcontract terms is only one weapon in this battle. Since many of these reflected liability scenarios result from a contractors who have little attention to record keeping, the exposed prime contractor is often left with little documentation to mount a defense. In addition to the mandatory contract clauses, provision of monthly certifications which include representations about subcontractor employee pay as well as executed reports of wages paid, hours worked including employee sign-in and out sheets, subcontracts should also include indemnity obligations and explore the possibility of personal indemnity from subcontractor owners.
In addition to these basic contractual provisions and deliverables, some of our proactive clients are even holding mandatory training meetings for subcontractors to attend to roll out the wage forms to be collected with each invoice and use the opportunity to make sure all subcontractors are aware of their wage obligations to employees and are affirmatively taking steps to avoid these claims.
If you have questions about your contractual requirements or discuss what options you can undertake to mitigate your exposure, feel free to reach out to one of our attorneys in the Construction Group or Labor and Employment Group.
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