The Fight Against Crime: Notes From the Front : Profiting by Preventing Fraud, Theft

For $225, you can take a course at UCLA Extension about how to avoid “Frauds, Cons and Scams” in your business.

But if you are thinking of taking the class simply to learn how to spot employee theft or embezzlement, you might be better off just remembering what your mother used to say about using your head.

“So much of this stuff is only common sense,” said North Hollywood accountant Alex Kwenchansky, who will be teaching the course for the fourth time this January on the Westwood campus. Many of his remedies are commonly accepted business practices--solid inventory controls, honest accounting.

“I don’t tell people anything that they don’t already know,” Kwenchansky said over coffee, “they just don’t think fraud and theft will happen to them.”

But it will.

“I was 15 years old when I first realized this,” said Kwenchansky, now 43. That was when he heard a businessman talk about costs. “He said he had to spend a certain percentage of his income on this and a certain percentage on that, and as part of the list he said he lost 2% or 3% to employee theft.

“It was just like every other item on his list,” he continued, “a part of doing business.”

Employee pilfering can get completely out of hand. Kwenchansky once did some work for a Canadian chain of shoe stores that had fallen on hard times. “I think they had more shoes going out in theft than sales,” he said. “There was no inventory control at all, they had no idea what they had.”

Many of the shoe boxes in inventory contained only one shoe. “Someone would take one shoe from two different boxes to make a matched set,” he said. “They would leave one so that the box would still have some weight to it.”

In another case, he warned a prospective investor that a company trying to raise funds was “designed for theft,” even though the owner proudly showed off a security camera system.

“He could see people putting boxes on shelves and taking them off,” Kwenchansky said, “but he didn’t really know what was in the boxes or where they were going.”

The police later caught employees stealing from company trucks.

Apart from these extremes, according to Kwenchansky, chasing employee theft is usually not cost-effective. “To stop this kind of theft 100%, you’d have to spend all your time looking for it and no time running your business,” he said.

More dangerous, he believes, is fraud and underhanded behavior by suppliers. “There was this furniture maker who used to complain that they would always run out of fabric,” Kwenchansky said.

The furniture maker got a counting machine and found out that rolls from several suppliers were coming in at shorter lengths than ordered. “It might have started out as a mistake,” Kwenchansky said. “When nothing was said about it, they just kept doing it.”

He also warns his students to be careful not to rely too much on one supplier or one customer. “Then they can control you,” he said, asking for kickbacks or even threatening to destroy the business if they are not given part ownership.

In making investments, he said, a sales or profit report can’t be taken at face value. One drug manufacturer with which he was familiar simply made up sales receipts to bolster the company’s financial picture.

“In fact, he had no sales at all,” Kwenchansky said, because federal authorities had shut him down.

Applying Kwenchansky’s methods to Kwenchansky himself is not easy. Although he said he has been hired by several companies to help them find fraud, he will not reveal their names. “I could get killed,” he said.

And none of the theft he said he has found has resulted in a court prosecution. “Companies want to keep it very quiet,” he said.

So how can you determine if you should spend the $225 to take his class? Kwenchansky had a quick answer.

“Don’t spend it,” he said. “Come to my class the first night and see if you like what you hear. If you don’t, all you are out is $5 for parking.”