Recently, a controller for two Southern California companies was charged in a federal grand jury Indictment with embezzling $3 million. After providing you with a summary of the allegations, we will delve into what can we learn from this recent Indictment.
With respect to this particular case, remember that an Indictment does not mean that the accused is guilty, nor is it proof of guilt since our Constitution provides that the accused is presumed innocent until proven guilty beyond a reasonable doubt.
On November 18, 2021, a federal grand jury in Santa Ana, California in the Central District returned a 15-count Indictment accusing the former controller, Rosalba Meza, for two Anaheim-based companies, Trilogy Plumbing, Inc. and Matrix Management, LLC, of embezzling more than $3 million by directing the transfer of company funds to bank accounts that she controlled. She is scheduled to be arraigned on the indictment today (November 29) in United States District Court in Santa Ana.
It is alleged that in February 2019, Ms. Meza told executives in these two companies that they did not have funds to meet payroll obligations but failed to inform the executives that she had been embezzling from the companies. Several months later, while the companies were the subject of an IRS enforcement action because of unpaid payroll taxes, Ms. Meza allegedly told the executives that she did not pay the quarterly payroll taxes because she instead had used those funds to pay employees.
The Indictment alleges that, once the funds were transferred to her accounts, Ms. Meza used the stolen money to make approximately $292,137 in cash withdrawals at bank branches and more than $1 million in withdrawals at ATMs in the United States and Mexico. Ms. Meza also allegedly wired approximately $870,209 to bank accounts in Mexico owned by a family member and another $250,000 in transfers to other family members and friends. The Indictment also alleges that Ms. Meza filed tax returns for the years 2017 through 2019 that failed to report as income the embezzled funds.
What can we learn from this Indictment? First, like most other people accused of embezzlement, Ms. Meza does not have any criminal history. Past studies have shown that less than 10 percent of people charged with embezzlement have any prior criminal history. This means that background checks alone will not protect you.
Second, business that have weak or non-standardized financial control systems are the most at risk. Smaller companies and non-profit companies are most at risk. While it seems typical to trust long-term employees who handle finances and accounting, it is critical to have controls. Over 70 percent of embezzlement cases involve employees in finance and accounting.
One of the best controls is having an outside bookkeeper or accountant go over the business’ checks and reconciling the bank account on a monthly basis. The person who is in charge of writing checks and doing the bookkeeping should not be in charge of the reconciliation. It may cost more in administration costs, but in the long run you will be thankful for that extra expense. Another control is to have the mail go to a third party who scans all mail before it goes to the controller or head bookkeeper.
Third, unlike most crime, a majority of the individuals accused of embezzlement are women. The person most likely to embezzle is a woman over the age of 40 working in finance or accounting. Prior studies show that approximately 57 percent of those accused of embezzlement were women.
Fourth, the embezzlement occurs over a period of time. In this case, the alleged takings were over two years. The average embezzlement case involves a time period over 3 years. This is another reason why internal and external controls are key since it is easier to catch any irregularities at an early stage.
Fifth, the motivation of the employees is financial. Cases tend to increase during financially difficult times. In addition, over twenty percent of the cases (especially those involving men) involve those addicted to gambling. Look for any red flags relating to employees who appear to be living more lavish lifestyles. While your employees are generally trustworthy, they are human, and inherently sometimes act out of perceived need, regardless of ethics or reason. It helps both employees and companies to not tempt fate with excellent standardized controls.
Having represented people accused of embezzlement, there is usually a great deal of remorse. But by the time charges are brought, usually the funds have been spent. Repayment of the funds taken is best for anyone accused of these crimes and helps the victims recover from the financial loss. We have urged anyone we have represented to do all they can to repay even a portion of what has been taken.
In the past, companies were often embarrassed to report that a key employee had stolen from them. However, those days are changing. In this case, it was not simply general funds that were taken but also the withholding amounts from the employees for their payroll taxes. The audit by the IRS was what led to the discovery of the alleged embezzlement. We urge companies to report any thefts unless there are circumstances that would cause further problems. Each case is different.
Posted by Green and Associates
