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With Friends Like This, Who Needs Enemies?

January 06, 2016

Posted in Business Start Ups, Civil Litigation, Employment Law

photo - with friends like thisWhen you’re hiring someone for your business, especially for a position where the person can access funds, you need to find not only someone who’s competent but trustworthy as well. If you know someone for a while, maybe you’ve become good friends, you may feel a connection that makes hiring the person feel like the right choice to make. As a recent Orange County Register article shows, the hiring of a friend was a $6.8 million dollar mistake for a local business.

Russell Eugene Dunbar, formerly employed by a Santa Ana piano store, Fields Piano, was sentenced in July to 18 years in state prison for embezzling up to $6.8 million over three-year period with the company. Dunbar was found guilty last year of felony counts of forgery, falsifying records and grand theft. According to the Orange County District Attorney’s Office the charges included enhancements for aggravated white-collar crime over $500,000 and property damage over $2.5 million.

Fields Pianos hired Dunbar, a close friend of the owners, to be responsible for the company’s accounting in 2001. According to the district attorney, two years later Dunbar took steps to help himself to company funds.

  • He opened a personal bank account with a name similar to his employer’s business, Fields Piano Company, and deposited large checks from the store into this account.
  • To help hide his actions, Dunbar wrote smaller, personal checks and deposited them into his employer’s account and used deposit receipts to create false receipts.
  • Dunbar told his employer the large deposits were deposited in the company account, though there were no such deposits.
  • The store owners were unaware of the losses and paid taxes on income they never received.

In 2005, Dunbar left Fields Pianos to invest in a mortgage company, which folded in less than a year. In 2010, Dunbar, apparently not satisfied with embezzling millions from his former employer, came back for more.

  • He sent a letter to Fields Pianos’ owners claiming he was owed more than $300,000 for real estate transactions. This lead to the unraveling of Dunbar’s web of financial deception.
  • The owners investigated his claims, found Dunbar’s scheme and reported it to the Santa Ana Police Department. It investigated and later arrested Dunbar.

At the sentencing hearing company owners told the judge Dunbar violated his position of trust and that they had been close friends (or so it seemed).

The Association of Certified Fraud Examiners (ACFE) estimates businesses lose 5% of annual revenue to fraud by employees and officers, according to an article in Inc. magazine.

‘Managers and small business owners have a tendency to trust their employees to a higher degree and, because they are doing more, they may not be as detail oriented as they should be,’ says Allan Bachman, education manager for the ACFE. ‘That level of trust is often betrayed. Sometimes employees start taking advantage of the fact that the boss isn’t looking and thinks I’m doing a great job.’

One action that may discourage or expose the kinds of fraud Dunbar committed is an outside audit, which could be regularly scheduled or an unannounced, surprise audit. If you think your company may be the victim of fraud, or you’ve already confirmed that through an audit or investigation, contact our office so we can talk about the situation, discuss what criminal charges could be filed and possible civil actions to try to recoup what your business has lost.