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Thursday, January 12, 2012

Inside Jobs: What's Your's is Mine

     In criminal law, when a person steals without force or unlawful intrusion, it's the crime of larceny, or theft. The vast majority of thefts are committed by employees against their employers. Security practitioners call this internal theft, and it involves, every year, the loss of billions of dollars to business and industry. Employees rip-off cash, merchandise, equipment, supplies, and time. In the retail business, employees steal 75 percent of all pilfered cash and merchandise. Customer and vendor thieves account for the rest.

     You rarely hear economists or politicians speak of this problem, but internal theft is one of the reasons employers try to get the job done with as few employees as possible.

     American employees steal a lot because they either live beyond their means; are hooked on drugs, booze, gambling, or shopping; are ethically corrupt; or are narcissists who simply feel entitled. When caught, employee thieves come up with various sob stories and all manner of excuses, but they all steal for the same basic reason: to get something for nothing.

Bad Employee, Good Thief

     Until she was caught in July 2011, 57-year-old Patricia K. Smith, a controller at a suburban new car dealership near Pittsburgh, Pennsylvania, stole $10.2 million from her employer. On 800 occasions, over a period of six years, Smith shifted money from the dealership's operating funds to its peronnel account, then to an out-of-state financial clearinghouse, then into her personal bank accounts. She kept her embezzlement scheme going by inflating vehicle inventory, and doctoring various financial records and bank statements.

     This employee thief on steroids explained her affluence and lavish spending by claiming gains in the stock market, and success as an online travel agent. Smith's massive internal theft operation supported an extravagent life style that would have impressed Robin Leach, the host of the old TV show, "Lives of the Rich and Famous." 

     Smith bought four houses, ten vehicles, a mink coat, and a vault full of expensive jewelry. She traveled the world first-class, running up charges of $5.5 million on her American Express card. She spent $44,500 on 6 club-level tickets to the Super Bown in Arlington, Texas last February. She also paid $32,500 to have lunch with a Food Network star; $5,000 on a Vatican trip featuring VIP seating at a Mass with the pope; and $2,500 for a "Phantom of the Opera" package that included dinner with Kevin Spacey.

     On January 12, 2012, at her federal plea hearing--Smith had pleaded guilty to several counts of wire fraud that could put her in prison for five years--the employee thief wept. I can see why. Her life of excess at her employer's expense had come to a sudden end. No more fancy meals with celebrities. In fact, no more fancy meals, or fancy anything.

     I can't believe this woman paid $32,500 of the car dealership's money to have lunch with a TV cook.

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