How To Steal Money and (Almost) Get Away With It

ANNEALBC.
COM
How to Steal Money

and (Almost) Get Away
With It
PAGE 2
HOW TO STEAL MONEY

AND (ALMOST) GET AWAY WITH IT
Several months ago I wrote an article titled How to Prevent Embezzlement
from Ruining Lives. I mentioned in the article that a long-time, trusted
employee (my bookkeeper) had embezzled $340,000 from the company I ran
at the time. I described many of the common methods thieves use to steal,
but I didn’t describe the specific method my bookkeeper used. I’m doing it
now, first because the knowledge may save you a lot of money and pain, and
second, because these scams are always interesting. (Whenever I mention
embezzlement, people always want to know how “they” did it.)
My company had a large number of credit cards issued to company officers and
sales people. All of the cards were issued by the same credit card company.
We made a lot of purchases on the cards, which meant that we had to pay down
the balances several times per month. My bookkeeper paid the cards on the
credit card website using Automated Clearing House (ACH) payments. It just so
happened that she had a card issued by the same bank, and she simply paid her
credit card along with ours.
Our month-end bank statements showed a lot of payments to the same credit
card company, and all of them showed up as payments to:
“[Credit Card Company} card number ending with ####.”
The only way to tell the difference between our cards and hers was to look at
the last four digits of the card number. That wouldn’t have been hard to do, but I
didn’t often look at the bank statements, and when I did, I didn't pay any
attention to the card numbers.
PAGE 3
Okay, so that’s how she did it. But how did she (almost) get away with it?
When you take money from your bank, you have to enter the withdrawal in
your bookkeeping software, otherwise your books won’t reconcile with your
bank account. However, once you enter a withdrawal in your books, you
also have to record where the money went, otherwise the software won’t
record the transaction. That was a problem—where could she record the
expense so I wouldn’t notice?
The most she took in a single month was $14,000, which she knew I would
notice. She solved the problem by recording the expense in the prior
year! The bank reconciled because she recorded the withdrawal, and the
expense didn’t show up in current financials because she recorded the
transaction in the prior year! Clever.
But that’s not the end of it.
Recording a transaction in last year’s books presented her with another

problem. Adding a transaction to a prior year changes the year-end balance
of an account called retained earnings (near the very bottom of your
balance sheet). Most of us don’t look at that number, but accountants do. In
particular, they check the number at tax time to see if the current amount is
the same as the amount shown on last year’s tax return. Accountants would
be immediately suspicious if the numbers were different. She solved that
problem every December by changing the transactions back to the current
year. After she moved them back, I didn’t notice the stolen amounts
because they were scattered throughout a year’s worth of business.
PAGE 4
Whew! That was a lot to remember and do, but the payoff was $340,000,
and she almost got away with it.
I doubt that I would have discovered the theft if we hadn’t sold the
business. To make a forecast of payouts to our investors, I had to dig into
the books. That’s when I noticed faint pencil scribblings in the margins of
our printed bank statements. She had made the notes so that she could find
her antedated entries and change them back at the end of the year. I
started asking questions, and she finally admitted what she had been doing.
That whole scheme appears pretty sophisticated, but any good bookkeeper
with a little cunning and sufficient incentive could do it. So what could I
have done to prevent the theft?
I could have paid more attention. I should not have simply trusted that
embezzlement wouldn’t happen to me. (My experience has shown that the
victims of embezzlement are shocked to the point of disbelief when they
discover it.)
I could have trusted my instincts. Looking back, there were many times
the bank balance didn’t reconcile with my mental math. You know what I
mean by mental math - it’s that running tally you keep in your head about
what comes in and what goes out and how much should be left over. Many
times it just seemed to me that we should have had more money in the
bank than we did. Turns out my instincts were right, but I never acted on
them.
I could have password protected prior year entries. Most software has a
setting that requires a password in order to make entries into a prior year.
This feature might have frustrated my bookkeeper’s scheme, except it
PAGE 5
wouldn’t have because she had all the passwords.
Most importantly, I could have used an outside accountant to close our

books each month. An outside accountant would have reviewed the
retained earnings account each month and spotted the changes. Instead, I
had my bookkeeper close the books. I trusted the fox to guard the
henhouse.
Although the explanation is a little tedious for this short article, there is
another method that will spot prior year entries, even if they were made
with the permission of passwords. Email me, and I will send you the steps to
implement the method.
I am writing this article about two weeks after a client of mine caught an
employee stealing from his company. The thief had worked for the
company for more than 25 years, and everyone thought of her as “family.”
Evidently, she thought differently because we found proof that she had
been stealing from them for many years. Talk to your outside accountant
about how to guard against embezzlement. If you think it can’t happen to
you, it probably already has.
If you have any further questions, please don’t hesitate to mail me at

Martin@annealbc.com or visit www.annealbc.com
LEARN MORE FROM MARTIN AT ANNEALBC.COM
Martin Holland
Martin Holland is the son of a successful entrepreneur. He grew up hearing about

margins and markets, R&D and sales, risk and return on investment. He learned to love
the language and rigors of business and grew to believe that business is both the most
human of all endeavors and the highest calling. After selling a company in 2011, Martin
became a coach in order to help other owners build profitable businesses that do not
require their day-to-day involvement.
A native of Norman, Martin earned a B.A. degree from Hastings College in Hastings,
Nebraska and a Masters in Business Administration degree from the University of
Oklahoma. Over the past 7 years he has written business plans that have raised over
$52.4 million in bank and investor financing. He has helped 157 (and counting) business
owners reduce stress and increase performance through clarity of purpose, better
marriages, more money, and more free time away from the business.

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ANNEALBC.

How to Steal Money

HOW TO STEAL MONEY

“[Credit Card Company} card number ending with ####.”

But that’s not the end of it.

Recording a transaction in last year’s books presented her with another

wouldn’t have because she had all the passwords.

Most importantly, I could have used an outside accountant to close our

If you have any further questions, please don’t hesitate to mail me at

Martin Holland is the son of a successful entrepreneur. He grew up hearing about

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