Embezzlement, or the fraudulent theft of business assets, is one of the better known white collar crimes. Skimming money off the top of a companies’ finances is not an uncommon crime, but it is a difficult one to detect, prove and punish. One of the issues with charging someone with embezzlement is the difficulty in determining who was involved and who was not. Prosecutors often cast a wide net when searching for culpable individuals, occasionally entangling those who had nothing to do with the crime.
Something similar recently occurred at the top levels of a high profile construction company. The problems began when the CEO received a number of complaints from suppliers alleging that they hadn’t been paid. The CEO directed his CFO to make the payments, but unbeknownst to the CEO, the financial officer was writing the checks to himself. The CFO also failed to pay payroll taxes for the company.
By the time the fraud was discovered, the CFO had taken hundreds of thousands of dollars in a process lasting more than one year. The CFO eventually pleaded no contest to charges of grand theft and tax fraud. The CEO’s problems, however, were just beginning.
Six years after the CFO failed to pay payroll taxes, the IRS demanded payment from the CEO. When the CEO refused, the IRS sued him, claiming that he was complicit in the crime, or at least somehow culpable. The case quickly became acrimonious, with the IRS claiming that the CEO should have discovered the fraud more quickly, and claiming that he “shared responsibility” with the convicted CFO. The case has yet to see resolution.
Workers should never be punished for the transgressions of their coworkers, but often it is difficult to avoid the appearance of involvement. Managers, therefore, should be careful which documents they sign and always thoroughly investigate any accusations of fraud.
Source: Forbes, “CEO Held Liable For CFO’s Embezzlement” Robert W. Wood, Aug. 28, 2013