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Upper Valley Embezzlers Take $2.4 Million

Sunday, March 30, 2014
Lebanon — At least $2.4 million has been embezzled from more than 20 small businesses, government agencies and nonprofit organizations in the Upper Valley over the last decade. In least one case, the theft contributed to a bankruptcy. Most of the crimes have taken place in Vermont and most were carried out by middle-aged women — trusted employees who had worked with the businesses for many years.

A variety of organizations have been victimized. While financial institutions are the most common targets nationwide, food and hospitality businesses have been hit hardest in the Upper Valley.

There’s a perception that the number of embezzlement cases may have increased in recent years, but that may not be the case. Authorities say the stigma and embarrassment associated with the crime — which in the past caused it to be swept under the rug or settled privately — is less of an issue now, and more business owners are now pushing for prosecutions.

Based on cases that were in the judicial system in 2012, Vermont was ranked ninth in the country in risk for loss by embezzlement, according to a recently released report from Marquet International, a consulting firm based in New York City and Boston headed by Christopher T. Marquet, an attorney with more than 30 years of experience in business intelligence and security consulting.

When all cases from 2008 through 2012 are considered, the report says, Vermont was number two, behind only Iowa. That state convicted Russell Wasendorf of siphoning off $215.5 million from 10,000 clients of the Peregrine Financial Group, a case which skewed the figures during the period.

New Hampshire is ranked 45th in the report. FBI figures show embezzlement in the Granite State is about half the national average, on a per capita basis, and 25 percent lower than Vermont.

“I’m not really sure why Vermont is so much higher,” said Vermont Law School professor Cheryl Hanna. “I can’t imagine that New Hampshire laws are much different than Vermont laws, and a lot of the cases violate federal law anyway. A lot of these crimes go unreported in many states, and maybe more are being reported here (in Vermont), but I think culture is a big part of it,” she said.

Hanna cited “a real culture of trust in Vermont, which is a good thing about the state, but it has its darker side in social capital. Because we’re small, we know people (and) tend to trust them to do their jobs properly, and governments and businesses often do not employ best financial practices that would protect them and uncover fraud.

“Some small organizations are doing their books by hand. There are no checks and balances,” she said. “I really would hate to see Vermont lose the culture of trust, but it can be balanced with good financial practices.”

In the Upper Valley during the last 10 years, embezzlement cases generally followed nationwide patterns:

∎ About 82 percent of embezzlement crimes in the Upper Valley were carried out by women. Nationally, women embezzlers accounted for 62.4 percent of the crimes.

∎ Most of the women held bookkeeping positions and took the money over an extended period of time.

∎ T he women involved in embezzlement crimes in the Upper Valley were a little younger than the national average — 38.4 years old vs. 42.7 years old.

∎ T he average take in the Upper Valley was less — $110,000 vs. $340,000 nationally.

∎ Both locally and in the rest of the country, the most common embezzlement scheme involved issuing forged or unauthorized company checks.

Few companies are immune. Several years ago, a Tunbridge woman was convicted of taking payments from stores that sell the Valley News . Amy L. Fortune, 37, changed invoices, collected more than $1,500 in payments and failed to turn them over to the newspaper, court records show.

The reasons for embezzling vary, but the crime often is prompted by a desire to live a better lifestyle, said Barbara Arel, an associate professor of accounting in the University of Vermont School of Business.

This appears to have been the case with Bonnie Johnson, 45, the former office manager at North Country Smokehouse in Claremont, where she worked for 21 years.

Last year, Johnson pleaded guilty in U.S. District Court to embezzling more than $600,000 from the company.

Owner Mike Satzow, a third-generation butcher, built North Country Smokehouse, which produces and sells artisanal smoked meats and cheeses, into a growing national business. Between July 2005 and April 2013, Johnson wrote checks to herself using Satzow’s signature stamp, used the company credit card for personal items and tampered with the company’s books to try to cover her tracks, federal court records show.

She went on “elaborate” vacations and bought luxury vehicles, including a Mercedes-Benz SUV, Harley-Davidson motorcycles and snowmobiles, according to a lawsuit filed by Satzow. He discovered the thefts while Johnson was on vacation.

“I was shocked at the number of business people that I know from across the country that called and told me that something similar had happened to them ,” Satzow said last week. “Things are changing rapidly now with the new technology and the way money is handled. It makes you very vulnerable. It’s no longer the guy in the back room with a green visor and a ledger.”

These days, Satzow has his monthly bank statements sent to his home, n ot the business, and he looks at his books every day.

“I was fortunate that when this happened to me, my business had doubled, but a lot of people aren’t like that. You have to trust people, but you have to be very careful these days who you trust,” he said.

In most cases, embezzlers start slow and increase the amount they take over time as they become more confident that they won’t get caught, according to the Marquet report.

Johnson was no exception. In 2005, she wrote checks to herself for more than $16,000.

By 2012, she was paying herself $4,000 a week for a total of $124,000, court records show. She was sentenced in January to 33 months in federal prison and three years of probation. Johnson must repay $506,011.77 to North Country Smokehouse and the remaining $100,000 to an insurance company. Her husband has filed for bankruptcy.

The reasons people embezzle from companies — where often they are respected by co-workers and considered a friend by the employer — are murky, but most situations fall within the “fraud triangle,” said Arel, the UVM professor. They see an opportunity to misappropriate cash or company assets; they rationalize a justification for their actions; and they are under some kind of pressure that works as a motivation, she said.

Women are most often the perpetrators, perhaps because they tend to start off in clerical positions and work up to trusted jobs that give them the access necessary to steal.

They may rationalize their actions because they feel underpaid or underappreciated, and they feel pressure to take money because they want a better lifestyle or need to pay bills or other obligations, said Arel, who before earning her doctorate worked as a senior auditor in a regional public accounting firm and is licensed as a certified public accountant.

“There are all kinds of reasons,” she said. “One of the biggest national embezzlers lately had a horse farm, and she needed the money for that. Everyone assumed she was wealthy, or that her husband was paying the bills, and didn’t question her lifestyle.”

Earlier this month, Pamela Smith, 57, pleaded guilty in federal court to stealing more than $200,000 from The Shire Riverview Lodgings in Woodstock, where she worked as a bookkeeper.

According to court records, Smith started taking money as early as 2009, writing checks to herself using the signature stamp of the owner, Dorothy DiCarlo, a longtime friend.

By 2013, she was taking more than $60,000 a year, paying personal bills with checks and cash taken from the business.

DiCarlo found a discrepancy in the business’ banking accounts last March. In a sworn statement, DiCaro said she was “shocked and numb because (Smith) was a trusted friend and employee” who had worked for her a long time and seemed to do “a great job.”

“When someone is doing a good job — I was paying my bills on time, my taxes were being filed on time — you tend to get lazy,” DiCarlo said last week. “I hate doing the books, and there are so many things that I have to do in this business, when somebody can take over one thing and she’s good at, you let them do it. She was very cle ver.

“It’s been a big mess for me. I’ve had to change everything — the credit cards, the bank accounts all my passwords and I had to file for an extension on my taxes because things are so messed up. I’m fortunate my business was good, but she really caused a mess.”

Smith faces 20 years in jail and is scheduled to be sentenced on July 8.

Michele Storms, 44, was sentenced in March 2011 to spend a year in the Northeast Correctional Facility in Swanton, Vt., for embezzling $178,000 from the popular Woodstock and Quechee restaurants Bentleys and Fire Stones.

She was the financial officer for the restaurants’ parent company, and she manipulated receipts from the businesses, taking cash and offsetting it by doctoring credit card receipts.

All went well until she was out sick one day, and another bookkeeper discovered the scheme.

Bentleys and Fire Stones didn’t recover from the thefts, in addition to other business woes, and were forced to close in 2012. The businesses have since reopened under new ownership.

David Creech and Bill Deckelbaum ran Bentleys under Mountain Trading Co. and Fire Stones under Bentleys of Quechee Inc. Both corporations voluntarily filed for bankruptcy under Chapter 7 of the federal bankruptcy code, court records show.

Embezzling can be stemmed or prevented by establishing checks and balances, Arel said. Here are some suggestions from both Arel and the Marquet report:

■ Someone in the organization has to be skeptical, whether it’s the owner or an independent outside auditor.

■ A segregation of duties is always a good idea. A single individual should not have access to all aspects of the company’s finances. The person who writes the checks doesn’t sign the checks or use a signature stamp. It’s also good to have two signatures on checks over a certain amount.

■ Someone other than the bookkeeper or the check writer should be reviewing the cance led checks and bank statements. Embezzlers frequently write checks to themselves or their personal vendors. For example, Smith paid The Home Depot $22,000, an expense The Shire Riverview would not have had.

■ Audit credit cards and petty cash regularly and back up financial records daily.

■ Regularly rotate responsibilities of bookkeeping personnel.

■ Companies should require all employees, particularly those with financial oversight, to take vacations. That gives another person the opportunity to see what’s going on, Arel said. “Typically embezzlers don’t like to take vacations, because they are afraid they’ll be caught.”

■ Businesses should never let financial officers and bookkeepers take their work home.

“Fraud happens at all levels of business, big and small, as we’ve seen in recent years, but it can be prevented by keeping a closer watch on things,” Arel said.

Warren Johnston can be reached at wjohnston or 603-727-3216.

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