Embezzlement on the rise

By Heidi Bell Gease, Rapid City Journal

RAPID CITY - A school business manager charged with embezzling $90,000. A small-business employee ordered to repay nearly $61,000 she had stolen. The director of a nonprofit organization sentenced for embezzling $10,000.

All of these cases took place in the Black Hills in 2005, but they're only a fraction of the embezzlement cases that have come out of local businesses, government offices and nonprofit agencies in the past few years.

And according to one local expert, the number of embezzlement cases is increasing.

"There's definitely more. Absolutely," said Jeannine Egan, a Rapid City accountant who has been investigating embezzlement cases for years. "It's definitely on the rise.

And maybe it's because we're noticing it more because people are being more observant than they were before."

Whatever the reason, embezzlement cases have repeatedly made headlines. Several nonprofit organizations have fallen prey to employee theft, including Storybook Island, Toys for Tots, YMCA's child-care program and Rural America Initiatives, where an employee stole more than $200,000. The Hot Springs VFW Post and Hot Springs American Legion Club lost money to embezzling employees at the same time in 2001.

Public offices and government agencies aren't immune either. City finance officers from Kadoka and St. Francis, the St. Onge Township treasurer, the Fall River County Register of Deeds, the Oelrichs school business manager and a South Dakota Department of Labor employee were all charged with embezzling amounts ranging from $4,800 to $90,000.

The Pennington County Auditor's Office is the most recent public office to make news. Investigators say former employee Ann Redwood stole about $83,000 between 2003 and 2005. Redwood has pleaded not guilty to charges of grand theft by embezzlement and forgery.

Businesses are obvious targets for employee theft, especially small operations where one person handles all of the money. Local victims have included banks, a law firm, an optical company, a medical center, a mobile home dealer and a Black Hawk painting business, where a bookkeeper admitted stealing about $200,000.

Egan says many more cases go unreported to police because business owners don't want bad publicity or because they feel sorry for the employee.

"There's a lot more than what's hitting the news," she said. "There are several where people will find out the dollar amount (that's missing) and they will negotiate terms with that employee to make payments."

Egan no longer investigates embezzlement cases unless the owners agree to press charges. "People need to be prosecuted for their actions," she said.

The owners of Ace Steel & Recycling went to police in 2004 after they realized an employee was taking money, although they had considered her such a good employee that they had previously helped her with moving and vehicle expenses.

Deborah Phelps, 30, had worked at the business for nearly five years, doing books and waiting on customers. "We knew our margin was off, but we just couldn't place our finger on it," part-owner Dorene Talley said. "We've had theft before with employees but never in the office."

Another employee discovered the problem when Phelps took time off. "She was actually changing my cash register tapes," Talley said. "It never dawned on me."

Talley said Phelps insisted on handling the tapes. "We thought, 'Well, she's a really good employee.'"

Investigators said Phelps stole more than $60,000 from Ace Steel & Recycling. She pleaded guilty to two counts of grand theft embezzlement. In January, Phelps received a 10-year suspended sentence and probation and was ordered to repay $60,787.83 in restitution - about $500 per month for the next 10 years.

Talley still isn't sure what Phelps, a single mother, spent the money on. But Egan and others say most embezzlers steal for one of three reasons.

"What I've found, and what the experts will tell you, is that you're looking for a gambler, a shopper or a drug addict," said Meade County State's Attorney Jesse Sondreal. "I haven't had a case that I can say in all honesty doesn't fit one of those."

Egan agrees, only she calls the shoppers "high-maintenance babes" who have to have nice stuff. "It's either nice stuff for them or nice stuff for their man."

Because women hold most bookkeeping jobs, most embezzlers are women. Egan figures that 75 percent of her cases involve gambling problems, another 20 percent drugs.

"I've had a couple where it was because they didn't have enough money to take care of their family," she said. "That doesn't mean you take something that's not yours."

Egan believes that disorganized offices are most likely to fall victim to employee theft. She sells an "Office in a Box" organization system she says detects embezzlement.

Another factor is trust, especially in mom-and-pop businesses. "They trust anybody they hire," she said. "You have to be really careful who you trust."

Investigators say no two embezzlement cases are exactly the same, and that's somewhat true of court sentences as well.

Embezzlers are almost always ordered to pay restitution. Depending on circumstances and criminal history, sentences might also include prison time, jail time and/or probation.

Some sentences include provisions to prevent a person from holding jobs handling money. In the Black Hills painting business case, 4th Circuit Judge Jerome Eckrich prohibited defendant Renee Lindgren from holding a checking account, which Sondreal called "a brilliant idea."

Other judges order counseling for drug, alcohol or gambling addictions. When Fall River County Register of Deeds Anita Cope was sentenced for embezzling $4,860, 7th Circuit Judge Janine Kern ordered her to make a public apology for her misdeeds in public office.

For victims, an apology can be as important as restitution.

Pennington County assistant public defender Paula Camp said as much in 2004 when her client, Jonette "Joni" Mommaerts, was sentenced for stealing more than $89,000 from the Rapid City Elks Lodge and another $13,000 from the local Toys for Tots program.

"What is overwhelming in this case is the hurt," Camp told 7th Circuit Judge Merton Tice Jr. "Miss Mommaerts wants to make amends, more than just financially."

Mommaerts, who used the money to support a gambling habit, later apologized.

Egan said embezzlement victims often respond the same way. "It's anger but it's more heartache and heartbreak," she said, noting that many business owners end up losing their livelihood and their life savings because of employee theft.

Embezzlement cases can have a ripple effect as well. Egan mentioned one case where wages withheld for child-support payments were instead pocketed by the embezzler, leaving some employees in the lurch. In an embezzlement case involving a tribally owned nursing home, the cash shortages meant food vendors weren't getting paid, and they stopped making deliveries to the facility.

Organizations that don't fail because of employee theft usually make changes in the way they operate.

Pennington County Auditor Julie Pearson said her office has made changes to prevent future problems but declined to describe them.

Ace Steel & Recycling owners installed security cameras and brought in trusted family members to handle some bookkeeping tasks.

The Rapid City Elks Lodge hired a consultant to help them change bookkeeping practices after Mommaerts' arrest.

Egan said business owners and agency directors often change their ways, too. For people who have left everything up to their employees, "It's like a wake-up call that says, 'Go to work.'"

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