- If you are going to steal from your employer, don’t invest the proceeds in meme stocks.
- If you are going to steal from your employer, don’t spend the money on Tinder dates.
- If you are going to steal from your employer, don’t openly base your scheme on a movie – let alone a comedy!
If these “lessons” sound like they shouldn’t need to be taught, then perhaps one should review the allegations against Ermenildo Valdez Castro. Per the New York Times, Mr. Castro referred to his scheme to steal from his e-commerce employer through the diversion of shipping fees and manipulation of product prices as the “OfficeSpace project.” In the 1999 comedy Office Space, goofy and disgruntled employees team up to steal “pennies” from their employer. The hapless employees make an error with a decimal point – and steal way more than they intended! In the movie, they seem destined for termination and prison. But as luck would have it, the employees are bailed out by a fire that burns down the office and incinerates the evidence against them.
Mr. Castro was not so fortunate. His employer, Zulily, discovered irregularities in several transactions connected to Mr. Castro. After an investigation, Zulily discovered that Mr. Castro double-billed certain customers for shipping. Castro also manipulated the prices for various items and then purchased those items for a fraction of their cost. Per the New York Times’ review of court records, Mr. Castro paid $250 for 1300 items worth more than $41,000. During interviews with law enforcement, Mr. Castro told investigators that the money was all gone – and that he had spent it on Gamestop stock and a woman he met on Tinder. When law enforcement searched his work laptop – another piece of theft advice baked into this sentence – they discovered a document in which Mr. Castro labeled his scheme as “OfficeSpace project.”
A fraud investigator might have discovered Mr. Castro’s malfeasance through financial statement analysis. One such tool would be “horizontal analysis” in which the investigator looked at Zulily’s numbers over time. Did the company have reduced profits in the first quarter when compared against the second? In 2022 versus 2021? The fraud investigator would seek to understand the reason for any change.
A fraud investigator might have also searched for the location in the company’s books where Mr. Castro concealed the discrepancy between the approved price for an individual product’s sale and the actual price of sale. There should be missing revenue that Mr. Castro would have needed to balance the books in order to hide. One way in which Mr. Castro might have hidden the money would be the addition of false debt to a customer’s account – perhaps one that already owed so much that a little more debt added on top would not have been noticeable.
Another method of concealment could have been the use of fictitious refunds. Mr. Castro might have processed a refund as if a customer was returning merchandise and then pocketed the amount of the return. Careful monitoring of inventory might uncover such a scheme, but there is typically a built-in delay between the date of a return and the date of a company’s next planned inventory review.
While there is no way to absolutely prevent a determined employee from stealing, there are some reasonable measures that an employer can take to mitigate risk. Such steps include a type of specialized division of labor known as segregation of duties. The same employee that records sales should not also handle returns. Another step an employer might take is to ensure diligent recording of each sale such that discrepancies in purchase prices are easily observable. Finally, an employer can undertake irregular or “surprise” audits. A diligent fraudster might anticipate a regularly scheduled audit and be able to cover his or her tracks – however audits at irregular intervals might interrupt concealment.
These are just a few examples of preventative actions that an employer can put into place. Whatever the controls that an employer currently has active, it is important to periodically review for opportunities to improve and increase the likelihood of fraud detection. While Mr. Castro based his scheme on a comedy, most employers do not find employee fraud to be a laughing matter!