Office Manager’s Fraud Case Has Familiar Ring

A trusted office manager of a surgical care clinic, over the course of four years, found a crafty way to “redirect” company funds to a personal bank account.

By Scott Patterson, CFE

February 2015

It is a story that repeats over and over in businesses around the world. A trusted office manager, over the course of several years, finds a crafty way to “redirect” company funds to a personal bank account. By the time the fraud is discovered, losses have climbed into the hundreds of thousands of dollars.

Such was the case with Donna Dodson, 53, of Baton Rouge, Louisiana, who was recently sentenced to more than five years for a scheme she perpetrated against the surgical care clinic where she worked.

According to U.S. Attorney Walt Green, Dodson was also sentenced to make restitution in the amount of $589,680.66, an estimate of the amount she stole between 2009 and 2013. Her sentence was handed down earlier this month after she pled guilty to five counts of wire fraud.

As detailed in a news release from Green, Dodson used the following strategy in her embezzlement scheme:

She created false and fraudulent entries in the company’s accounting records and software that appeared to indicate that the company owed money to various third parties.

She prepared check requests for the false entries she had created.

She fraudulently altered each check request before the check was actually printed, so that her own name would appear on the face of each check as the “payee.” 

As she obtained the checks, Dodson deposited the funds into one of her personal accounts. 

The scheme she perpetrated (and the length of time it persisted) indicates that Dodson must have been given plenty of latitude in accounting responsibilities at the clinic. As is the case at many small businesses, one can assume there was not a proper level of segregation of duties. In short, Dodson was given too much trust in her position as office manager, and there were not enough controls on her responsibilities and access. Her employer must have had no idea there was a fraudster in their midst.

Except that they probably should have had an idea. A quick Google search on Dodson finds some very interesting information – something any employer would want to know about a prospective employee.

Previously Accused

It turns out that in 2009 (the same year she was hired at the surgical clinic), Dodson was arrested by Louisiana State Troopers for allegedly stealing $80,000 over six years from a different employer.

According to news reports at the time, Dodson was working as a customer service representative for a local insurance agency. She “allegedly told customers who owned construction businesses that they could receive discounts on their worker's compensation policies if they paid in cash, then pocketed the cash and never initiated a worker's compensation policy.” Dodson was accused of generating false insurance certificates to further her scheme.

As a result, Dodson was charged with felony theft and 29 counts of insurance fraud. The case even made it into the Louisiana State Police’s annual report for 2009: “Woman booked in insurance case” (page 41). She isn’t alone in these pages for posterity. The publication includes a roundup of fraudsters (and alleged fraudsters) who made headlines in Louisiana during the year, including a special section on “Louisiana’s Most Notorious Criminals” (Dodson, to be fair, was not featured in that section). In fact, after giving it a quick look, it appears the Louisiana State Police annual report should probably be required reading for hiring managers in the state looking to fill positions that include any accounting responsibilities, for starters.

Which brings us back to the point at hand: The report indicates that Dodson was fired from the insurance company when the complaint came to light. The timing suggests that it was shortly thereafter that she went to work for the surgical clinic. At this time, was there a background check conducted on Dodson? And, if not, we can probably assume there weren’t checks in the following four years, either – which at any point would have indicated a felony arrest. Even a Google search would have provided this info.

Small Businesses Face Greater Risk

In its 2014 Report to the Nations on Occupation Fraud and Abuse, the ACFE found that the smallest organizations tend to suffer disproportionately large losses from occupational fraud. Additionally, the specific fraud risks faced by small businesses differ from those faced by larger organizations, with certain categories of fraud being much more prominent at small entities than at their larger counterparts.

Among those categories: Check tampering occurred in 22 percent of small business frauds, compared to only 7 percent in large organizations. “In addition, payroll and cash larceny schemes were found to occur twice as often in small businesses as in larger businesses,” according to the ACFE report. As observed in the report:

Small businesses are both disproportionately victimized by fraud and notably under-protected by anti-fraud controls, a combination that makes them significantly vulnerable to this threat. While resources available for fraud prevention and detection measures are limited in many small companies, several anti-fraud controls – such as an anti-fraud policy, formal management review procedures and anti-fraud training for staff members – can be enacted with little direct financial outlay and thus provide a cost-effective investment for protecting those organizations from fraud.

Fraud examiners know the risk factors and are familiar with the dilemma facing small businesses. But how to relate these risks, and the necessary protective measures, to clients? Stories like Dodson’s can have an impact, especially when it comes to the nearly $600,000 lost to her scheme. What can also help, however, is explaining the proactive measures that can be taken to prevent and detect fraud in any organization.

In the ACFE video “5 Steps to Reduce Small Business Fraud,” experts relate their advice for stopping the next scheme before it occurs:

Conduct background checks. Fittingly, this measure is first on the list. “We’re going to vet them. We’re going to check references,” said Allen F. Brown, former assistant legislative auditor. “I’m not going to hire you if I can’t check your references.”

Implement a written code of ethics. “It needs to be custom-tailored to the particular business and the particular ethical challenges that employees in that company face,” said Eric R. Feldman, CFE, Managing Director, Corporate Ethics and Compliance Programs, Affiliated Monitors, Inc.

Divide bookkeeping and check-signing authority. Segregating duties in this manner would have made it difficult, if not impossible, for Dodson to conduct her scheme.

Deliver bank statements unopened to top management. Dodson’s fraud lasted more than four years. It might have been discovered at any point by someone taking a close look at the company’s financial information.

Implement a reporting mechanism or hotline. Citing again the 2014 Report to the Nations on Occupation Fraud and Abuse:  “Tips are consistently and by far the most common (fraud) detection method. Over 40 percent of all cases were detected by a tip – more than twice the rate of any other detection method. Employees accounted for nearly half of all tips that led to the discovery of fraud.”

Conclusion

It is unfortunate that another company had to learn the hard way how much financial damage one unethical employee can inflict. This time, at least, Dodson won’t be moving on from her latest adventure straight into the offices of another potential victim. Instead, she’ll spend at least a few years in federal prison for her crimes. But business owners should be warned: there are plenty of other opportunists ready to take on the role of office manager or bookkeeper (or both) at an unsuspecting company.

Undoubtedly, some of them are perpetrating schemes right now. For any company looking to avoid becoming the next victim, proactive controls are the best protection from wolves in sheeps’ clothing.