HERE’S ANOTHER ONE

Steven Cesare, Ph.D.

In response to last week’s posting, a business owner from Massachusetts called me the other day to report how his former Controller misdirected company funds into her own personal bank account. He poignantly asked me to post his story in the hope it would prevent other trusting business owners from being exploited.

With an annual revenue of $8M and 78 employees, the business owner hired a new Controller in September of 2023, paying her $115k. Predictably, the Controller hit the ground running hard during her first several months, getting many things completed, taking on extra work, and reveling in the industrious company culture. That said, retrospectively, it was interesting that the Controller typically showed up for work at 9:00-9:05 each morning and left every day no later than 5pm.

The company typically uses four Capital One credit cards, transacting $20k-$30k per month. Like most organizations, the Massachusetts company uses a purchase order system requiring appropriate signature approval. During an external year-end audit for 2024, it was uncovered that the company was making an extra monthly payment of $1,800 to Capital One; leading to an annual overpayment sum of $16,300.

Peripheral to that same audit, it was uncovered that the Controller, who was independently responsible for the Company payroll process, unilaterally gave herself a weekly pay raise of $95 in May of 2024, resulting in an increase of $3,600 of unapproved annual wages. (Sounds identical to the Florida Human Resources/Payroll Manager highlighted in last week’s posting.)

Concurrent with the year-end audit, it became clear that the Controller’s bookkeeping, financial tasks, and reporting procedures were increasingly sloppy, inaccurate, or incomplete. It was also uncovered that the Controller had not had any state or federal income taxes deducted from her pay for the entire year of 2024.

Then in January of 2025, the Controller told the owner that she had a direct deposit paycheck, that for some unknown reason, would not go into her personal bank account. Despite growing suspicion, the supportive business owner directed the Controller to issue a manual check as a replacement for the aborted direct deposit transaction. As you would guess, it was eventually revealed that the Controller never actually voided the original direct deposit, only delaying it, allowing it and the manual check to both be deposited into her personal bank at a later date.

At the end of January, performance reviews were scheduled. Naturally, the Controller asked for a pay raise. Based upon the auditor’s recommendation, the owner did not approve her pay raise in that the Controller’s current pay rate was discrepant from the rate specified in her original job offer letter, and that there was no signed Pay Rate Form in her file granting formal approval of her extra $95/week increase.

Then the lying started. She told everyone that she was guaranteed a pay raise after six months on the job. False. Then she said her predecessor set it up automatically upon her departure and forgot about it. False. Then she said the Pay Rate Form must have been misplaced. False. Ultimately, the external auditor reviewed the company’s online payroll register history and found her manipulations. Accordingly, the business owner scheduled a meeting with the Controller, at which time the Controller told the owner that she had to leave the office to get a document notarized, and that they could meet when she returned.

She never returned.

The business owner sent the termination paperwork to her via e-mail, explaining her embezzlement, her misuse of the company credit card to pay for her personal expenses instead of company expenses, and her illegitimate use of EFT checks to vendors which do not require a signature.

The total financial loss was $21,295.38

The Massachusetts business owner contacted the local police and all relevant financial institutions. He is pressing criminal charges, awaiting a court date.

Bottom line: Don’t wait until December to do financial audits; have an external auditor do them quarterly.

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