Amnesty for Embezzlers

Several years ago I was an advisor to the Vermont State Auditor's Office, I, along with Tom Salmon, the state auditor, interviewed several convicted embezzlers. Among a host of enlightening responses to our questions, one was quite revealing. Embezzlers want to quit stealing but cannot do so.

Since early last year, there have been a rash of embezzlements within Vermont and adjacent counties in New Hampshire and Massachusetts. The reported embezzlements cross organizations the Catholic Church, Ambulance Service, law firm, local and state government, higher education institutions, country club and industry they were immune from the clutches of those who have a propensity to steal.

Another tragic aspect of the plethora of embezzlements is the profile of the accused or convicted embezzler; the embezzlers are not "hardened criminals." Instead, the individuals were respected long-time employees of their organization and they had deep roots in their communities. In effect, they were neighbors whom we trusted and respected. But what we had not known was how methodically and consistently "our neighbors" were engaged in unlawful activity.

There is a false premise that the recent difficult economic period is the reason we have witnessed a growth in the number of embezzlements. Not so. When one looks at the length of time the below noted embezzlements have been carried on, the beginning for many of them, predates the 2008 recession.

The following is just a brief summary of several embezzlements that have come to light since the beginning of last year: Dorset Field Club $60,000; University of Vermont $185,000; Potter Stewart Law Firm (Brattleboro) $200,000; Cold Hollow Cider Mill and Harwood Youth Hockey $120,000; New England Research (Hartford) $126,000; Shire Inn Motel (Woodstock) $220,000; Southern Vermont College $847,000; Village Ambulance Service (Williams town, Mass.) $240,000; State of Vermont Office of Risk Management $75,000 (could be much greater); Catholic Medical Center (Manchester, N.H.) $104,000. The total of the above ten cases amounted to $2,117,000 and will become even larger when the investigations are completed.

The two embezzlers that Tom Salomon and I had interviewed shared with us that embezzlements were ongoing throughout Vermont and they are just not being discovered. They told us that Vermonters have a high degree of trust, organizations don't have adequate internal controls, and most organizations can't afford to have outside auditors watch over their financial affairs.

Notwithstanding these well-known weaknesses, there are a few things we can do to slow down the rash of embezzlements, albeit not entirely eliminate such compulsive illegal behavior.

The first suggestion would be to have the State of Vermont provide a period of amnesty to those who are presently engaged in embezzlement and wish to cease their unlawful activity.

The granting of amnesty is not unusual. Recently, the IRS, in connection with Foreign Account Tax Compliance Act, has granted partial amnesty to those Americans who have not reported their funds which are kept in foreign bank accounts.

The embezzler's period of amnesty would be opened for one year. The self-reported embezzler would not be prosecuted but would have to agree to provide full restitution pay, to the IRS and to the state tax department the full amount of taxes due on their ill-gotten gains, and provide a complete narrative on how she or he perpetrated the embezzlement with special emphasis on what management failed to do. 500 hours of community service would be included as well. Suggestion two would be to have the state's attorneys and the courts bring some basis of common sense to the punishment of convicted embezzlers. The state statute for stealing $1,000 or more calls for a maximum sentence of ten years in prison. The actual sentencing range of those convicted over the past five years is so inconsistent and minimal that it almost borders on an incentive for one to become an embezzler.

In the above Williamstown, Mass. Ambulance Service organization case ($240,000), the convicted embezzler received no jail time, but was placed on probation and required to make restitution. Even though this was a Massachusetts case, Vermont courts provide a minimum of jail time when sentencing and rarely are there any income tax evasion consequences.

Suggestion three is to encourage companies and organizations that have become aware that they have been embezzled to report such theft to the authorities, no matter how embarrassing it might be. It does not help society to just discharge the embezzler, only to have such individual prey on his or her next employer.

My last suggestion applies to my fellow CPAs. We are professionally-bound to assist companies and organizations in the establishment of internal controls and in educating clients of their importance. We have been far too silent and, as an indirect result, Vermont is a close second in having the highest incident of embezzlements per capita in America.

To be the victim of embezzlement is a gut-wrenching experience no one would wish to have to endure. It is not only the loss of funds that is so painful; equally painful, trust in a fellow human being has been violated and lost forever.

Don Keelan writes a bi-weekly column and lives in Arlington


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