Crime and the Bottom Line
Companies assaulted by thievery and violence are being robbed of precious profits
High-tech crimes take many other forms, and their cost is limited onlyby the perpetrator's ingenuity. TheNational Center for Computer Crime Data estimates that business spends $555 million a year to repair computer sabotage. And Hallcrest Systems says that business lays out an additional $244 million on equipment and consultants to secure its computers against hackers and vandals.
INSIDE JOB Donald Houde might still be driving his Rolls-Royce and vacationing in Europe if it weren't for a routine personnel shuffle at Mile Hi Cablevision in Denver last year. Instead, the 38-year-old former systems director is parked in the Denver County Jail after a new supervisor began wondering how Houde's department could spend $30,000 on computers every month and how Houde's $57,000 salary could pay for three expensive cars and a mansion with Waterford chandeliers.
On closer inspection, supervisor Romaine Pacheco found that two of Houde's "vendors" consisted of nothing more than phony letterheads and rented mailboxes. That fact had escaped notice because Houde, a trusted nine-year employee, often rushed his invoices past supervisors with little documentation and made sure that no one executive ever saw his total expenses. Pacheco accused him of embezzling nearly $2 million from the cable television company over five years--no small sum for a company with annual revenues of $28 million to $30 million. Houde pleaded guilty last winter to felonious theft and was sentenced to eight years in prison.
As Mile Hi learned so painfully, the biggest crooks sometimes occupy corner offices. Embezzlement and kickbacks cost business $27.2 billion last year, and some experts believe the figure is manybillions higher because most companies are too embarrassed to report internal wrongdoing or simply never see it. And the cost is rising fast: Federal embezzlement cases multiplied by 40 percent during the 1980s, far more swiftlythan traditional forgery and burglary prosecutions.
Business is especially vulnerable to the enemy within because most corporate bookkeeping systems are unable to catch deception by those in positions of trust. Says Joseph T. Wells, presidentof the National Association of Certified Fraud Examiners, "Most auditors couldn't see a fraud if it hit them right in the face."
FIVE-FINGER DISCOUNT She needed money to buy clothes. Her friend needed money to make his car payments. The answer to Tamara Guerin's problem seemed simple enough. Last March, she started stealing from her employer, the Toys "R" Us store in Henrietta, N.Y., near Rochester. When customers returned merchandise to the store, the 18-year-old service clerk would write a refund slip for another, more expensive item and just pocket the difference. Over a five-month period ending last July, when she was arrested, Guerin took the toy store for a grand total of $6,970.18. In February, she pleaded guilty to third-degree grand larceny.
Refund scams are just one of the many ways dishonest employees are able to bilk retailers. Other workers simply walk out of the store with merchandise, conspire with delivery people or hide goods in trash receptacles for pickup at a later date. Of the estimated $12.6 billion that retailers lose to pilferage and shoplifting each year, roughly 60 percent stems from employee theft, according to a current study by the University of Florida. Internal theft is a much bigger problem than shoplifting, according to Jerry VanderPloeg, staff assistant for national loss prevention at Sears, Roebuck & Co. "The average shoplifter we apprehend is caught with $90 of merchandise," says VanderPloeg, "while the average [employee] apprehension is $750." A recent survey conducted by loss-prevention specialist Jack L. Hayes International concludes that 1 of every 15.2 retail employees is apprehended for stealing.