CASE 3: THE DOCTORED DOCUMENTS

A member of the board of a New York City co-op handled his building's investments and regularly supplied the board's CPA with bank and brokerage statements. Not the originals, of course – you keep the originals in a safe place and mail photocopies. But without a third party making sure the numbers matched, those statements could be scanned into a computer, altered, printed out, and then photocopied. In fact, the altered printout could even be switched with the original.

The board member in this case wasn't quite so high-tech – he merely used a photocopier and correction fluid to reduce the statements' interest and dividend figures by the amounts that he stole. This went on for two-and-a-half years and cost in the area of six figures.

One reason he was getting away with it so long is that the board's CPA auditor never sought the standard "third-party verification" – in other words, he never contacted the banks and brokerages to get statements directly from them and instead relied solely on copies given him by the board.

Another reason was more personal: even though the board member didn't relinquish the originals to anyone else, the board – for reasons that might have ranged from trusting a friend to not wanting to appear as if it were insinuating thievery – never insisted that he do so.

The embezzling was uncovered when the board needed money to pay for a major co-op expense and found the cash wasn't available in the investment account. They called in Glodstein's company to find out where the money went.

"We got originals from the investment company, compared them with the documents provided to us by the board, and noticed a difference between the two," says Glodstein simply. But that break came only after a lengthy process covering any of a number of possibilities. "A lot of times we go into cases and don't know where the bleeding is; the board just says, 'There's supposed to be more money there, and we don't know where it is.' We go through the checking account, we make sure signatures are proper, we make sure they're not paying themselves," he says, describing some of the standard steps.

The board member, when confronted, confessed. "A lot of times when you have 'em nailed, and there's nothing really they can do, it's kind of a relief for them to get caught," Glodstein says. "These people have been hiding and stealing, and they want to get it out in the open. Most of them think they're only going to 'borrow' the money and put it back. But then they find they can't, and, after having gotten away with it once, the temptation to go back can be like an addiction."

Despite the stealing, however, the board member didn't go to jail. "I think there was restitution he had to pay," Glodstein says. "A lot of times in these cases, the board doesn't want to bring negative attention to the situation, because how's it [going to] look for the board? They gave all this autonomy to one person and never checked on what he was doing! There always should be a checks and balances approach: always ask for original documentation instead of copies. Anything that's not original, there's a chance of it having been altered."

Read the next case >>