When Lloyd and Jim Graff discovered an embezzler in their company, they had to decide how emotional -- and how practical -- their response would be.
If Patty Preston hadn't taken a vacation in March 2000, it might have taken her bosses some time to realize that she'd been stealing from them. Preston was a bookkeeper at Graff-Pinkert Inc., a family-run business in Oak Forest, Ill. Owned by brothers Lloyd and Jim Graff, the company buys and sells machines that make metal components. It was Jim, the company's vice president and treasurer, who discovered that something was amiss.
Preston (not her real name) had neglected to deposit Jim's last few salary checks in his personal bank account. When he complained about the apparent oversight, a co-worker voiced a more troubling allegation: She believed Preston -- an 11-year employee and mother of three -- had recently charged several Rugrats videotapes to the Graff-Pinkert account at Office Depot. "And a backyard storage shed at Home Depot," chimed in someone else.
Graff investigated these claims, and finding them to be true, called his brother Lloyd, Graff-Pinkert's president, who was himself on vacation. The crime was clear -- Preston had used company money for personal items. "I fired her for being a petty crook," says Lloyd Graff, who did so by leaving a message on Preston's home answering machine before either she or he returned from vacation.
In the months to come, however, it became clear that Preston's crime was anything but petty. She had funded riverboat gambling and an extravagant lifestyle out of the Graff-Pinkert account for at least four years. The bad paper ran to dozens of checks and exceeded $200,000, a big hit for a company doing between $8 million and $10 million in sales.
Embezzlement is sadly commonplace, and arrests for the crime are rising. The FBI estimates there were 20,157 embezzlement arrests nationwide in 2001 (the latest year for which there are statistics), up from 15,700 in 1996. The most notorious claim last year involved a secretary in the London office of Goldman Sachs who allegedly stole $7 million, wiring the money to Cyprus. At presstime, she had pleaded not guilty.
A CASE OF THEFT: Lloyd Graff, president, fired an employee on her home answering machine when he learned she was stealing.
Graff-Pinkert took Preston's theft particularly hard. The company, started in 1941 by the Graffs' father, often does business on a handshake. The same spirit of trust extended to the company's employees, who numbered 18 at the time. The Graffs were known to provide workers with interest-free loans to make deposits on homes or in times of family crises. "Jim and I walked around punch-drunk as the enormity of the crime mounted up. It was a real blow to our confidence. We felt dumb," says Lloyd. "And the people who worked with her were horrified, even angrier than Jim and I. This was a co-worker they trusted, someone they went out to dinner with and to the gambling boats. They felt violated."
As the brothers pored over their books, the banal mechanics of Preston's fraud became evident. She'd write a check, say to United Parcel Service, and have a Graff brother sign it. Then she'd head back to her IBM typewriter and, using an erasable tape, Preston would alter the check, making it payable to her credit card company. Since she filed bank statements, no one saw the discrepancies. Forgery after forgery, the embezzlement grew, unnoticed by the Graffs in a busy time of growing sales. Their accountants, a small firm brought on decades before by their father, also missed the theft during annual audits.
The tendency for many business owners is not to prosecute," says Graff; his losses topped $200,000.
The company wanted Preston brought to justice and, lacking fidelity insurance protecting them against employee theft, the Graffs wanted their money back, somehow. But how to go about it? Local police seemed ill-prepared to handle white-collar crime, so the Graffs thought about suing Preston. And because many of the forged checks, they discovered, were sloppily altered, they contemplated naming their bank and accountants in civil suits citing negligence. But mounting a strong case could take years.
Then, both their bank and their lawyer suggested the Graffs try the FBI. Since Preston had mailed fraudulent checks across state lines, hers was a federal crime. The bureau was willing to pursue the case, but only if the Graffs agreed to go the distance. "The tendency for many business owners is not to prosecute," Lloyd explains. "They don't want their dirty laundry in public and don't want to look stupid for allowing someone to so easily take advantage of them."
Working with the FBI and pursuing the case in federal court, where they were told convicted offenders face strict sentencing guidelines, the Graffs were able to recoup a big chunk of the embezzled money. Under the terms of her plea bargain, Preston relinquished $90,000 (all company provided) from her profit-sharing plan. Though her premature "withdrawal" directed $18,000 of that to the government, the $72,000 Graff-Pinkert received helped soften its losses. So did tax refunds the company received after amending past earnings.