The Crime Within

Shari Simmons seemed the ideal employee at a Fountain Valley wholesale lumber company--hard-working, loyal and honest. Diana Curavo was the motherly bookkeeper for a South El Monte painting company, always bringing doughnuts and coffee for the two owners.

But over a number of years, they each stole hundreds of thousands of dollars from their employers and are now serving jail time after pleading guilty to felony fraud charges.

Their cases are hardly unique. Countless other small shops throughout Southern California and the nation are being defrauded at an alarming rate by their own employees. Much of the fraud goes undetected--or, at least, unpunished--fraud experts say.

The estimated cost of workplace fraud was pegged at $400 billion a year in a nationwide survey released early this year by the Assn. of Certified Fraud Examiners in Austin, Texas. The losses--the equivalent of 6% of total U.S. gross domestic product--were twice what researchers had expected.

According to the survey, the cost amounted to $9 a day per employee for the average company. “What it tells me is that the American work force is not as honest as it once was,” said Joe Wells, a former FBI agent who operates the international group of 20,000 fraud fighters from law enforcement, corporations and private investigation firms.

And the losses will grow, especially with the continued and greatly expanding use of computers, said Jim Helmkamp, research director for the National White Collar Crime Center. “More sophisticated crimes can be done more quickly with computers,” he noted.

Executives with access to big money grab the headlines. Yasuyoshi Kato, former chief financial officer of Day-Lee Foods Inc., was sentenced two weeks ago to 63 months in prison for embezzling as much as $100 million from the Santa Fe Springs meat processing company and spending much of it on luxurious homes, fancy cars and a citrus ranch.

But generally it’s the average worker for a small company who takes from the corporate cookie jar. It’s the office manager for a medical practice in Orange who admitted skimming $94,000 in cash from the company’s bank deposits, or the bookkeeper imprisoned for writing personal checks totaling $114,000 from accounts she controlled at a Southern California distributor of billiard tables.

Few, unlike Simmons and Curavo, end up being caught and prosecuted. What motivated the two women isn’t clear; neither would talk about her experiences.

Obviously, embezzlement is often spurred by greed and the desire to live a luxurious lifestyle. But researchers also believe that workers steal because they perceive they’re entitled to more pay. The concept, called “wages in kind,” is fueled by a variety of factors: low pay, long hours, disgust with corporate greed or dishonest executives--or even the sheer need for more cash.

They also say employees simply aren’t as loyal as they once were, perhaps because companies are perceived as failing to stand by their employees.

James B. Hunt, head of Price Waterhouse’s investigative services, believes corporate downsizing throughout the 1990s is a contributing factor. The first employees to be laid off typically are those in the audit and accounting departments, leaving companies less able to scrutinize themselves.

But he says workplace embezzlement is increasing in Southern California mainly because law enforcement on all levels is cutting back on manpower and targeting major crimes in priority areas like drug dealing and health care.

“Most [workplace] fraud will ultimately get detected,” he said, “but the threat of prosecution and serving a prison sentence is more remote than it was years ago.”

*

Joe Kunz Co., a wholesale lumber operation in Fountain Valley, seemed an unlikely environment for embezzlement.

“Like any small company,” said Patricia Enna, the company’s part-time bookkeeper, “we’re all family here.”

In fact, they all went to Shari Simmons’ 30th birthday party in March 1995--a big bash at the Grand Hotel in Anaheim with more than 100 guests.

The only problem was, Simmons, the company office manager, seemed to be living too well.

“It was the little things, like getting her Camry detailed all the time,” Enna said. “She often took three- or four-day cruises.”

They soon learned how she paid for the perks. Simmons had embezzled up to $286,000 over six years.

In March, she pleaded guilty to grand theft, forgery and fraudulent appropriation of property. She was sentenced the next month to a year in Orange County Jail.

“We thought Shari was a good, loyal, honest employee,” Kunz said. “We trusted her. She was the daughter of a retired policeman.”

But trust and credentials, he learned, don’t make an honest employee and aren’t substitutes for solid internal controls. As office manager, Simmons was given a great deal of responsibility--too much, as it turned out.

She handled all the mail, logged in checks and deposited them, took care of invoicing, listed the bills payable and was in charge of petty cash and the handwritten checks, about 10 a week for one-time purchases.

In addition, she was one of four people authorized to sign both handwritten checks and computer-generated checks for regular suppliers. Kunz had figured the arrangement was secure because two people had to sign every check.

But four months after her big birthday party, Simmons went on vacation and Enna, looking for a telephone number, stumbled across the fraud. Simmons, she found, had been writing checks to herself, not to the vendors she had listed in the company’s books. She had signed her own name and forged Kunz’s signature.

Starting in 1989, shortly before her marriage, Simmons was taking $200 to $300 a week, Kunz said. Eventually, the amounts grew to $2,000 to $2,500 a week, he said.

“I was flabbergasted because we didn’t even feel it,” Kunz said, noting that the company doubled in size during the period. “We just weren’t watching all our internal controls.”

In the wake of the theft, Kunz revamped safeguards and procedures.

Only he, his wife, Emily, and Enna can sign checks, and none of them can open the mail. Accounts have been moved to the smaller Marine National Bank, where Kunz expects better oversight. And the employee handling checks isn’t the same as the one reconciling bank statements.

Kunz went further than the front office.

He tightened the inventory system and put alarms on gates and motion detectors outside. Fewer people now have keys to the building, and those who do have individual code numbers that must be punched in for entry.

He now feels his company is about as embezzlement-proof as it can be.

“You can put in internal controls,” Kunz said, “but you still have to trust some people.”

*

Growing operations like Joe Kunz Co. are the typical victims of embezzlers, said Hunt of Price Waterhouse.

“They’re not thinking about infrastructure--controls--or the background of their employees,” Hunt said. And employees who steal often believe they won’t get caught--or, at least, won’t be prosecuted.

Kunz, for instance, once fired an employee over a $5,000 embezzlement and never sought prosecution or filed a lawsuit. The cost of pursuing it would have been more than the loss, he said.

Both state and federal law-enforcement agencies are already working at full capacity, said U.S. Atty. Nora M. Manella in Los Angeles.

“The business community has to realize that it can’t let [us] do it all,” she said. “We don’t have the luxury of assigning someone full time to any case very often.”

For instance, Manella’s office has doubled in size in recent years, but productivity hasn’t kept pace. That’s because the cases, especially fraud schemes, have become more complicated. “Even plea agreements are more complex,” she said.

Adhering to new tough sentencing procedures also requires more attorney time. “Sentencing used to take up 2.5% of our time,” Manella said. “Now it takes up 20% to 25%.”

Worse, Washington hasn’t awakened fully to the growing needs of federal agencies on the West Coast, where the seven-county Central District, based in Los Angeles, is known as the nation’s capital for such crimes as bank robbery, telemarketing fraud, counterfeiting and bankruptcy fraud.

*

Yet the district has only one criminal prosecutor for every 100,000 residents, while the nine-county Southern District based in Miami, for instance, has a criminal prosecutor for every 29,000 residents, according to U.S. Census and Department of Justice figures.

“There’s no doubt there’s an imbalance,” said Manella’s top aide, Richard Drooyan. “We have more than twice as many residents as any other federal district.”

Such major issues, though, are lost on operators of small companies that are hit most often by employee theft--and with sometimes devastating results.

Svend Holst, for instance, couldn’t understand how money in his Holst Painting & Decorating business seemed to disappear. The once-successful operation had employed 30 and handled jobs for Broadway, Neiman-Marcus, Saks Fifth Avenue and other major customers.

He was so depressed about his failing South El Monte operation that he tried to take his own life. His partner, Robert Calafat, pulled him from a car filled with carbon monoxide, saving his life. The two decided it was time to wind down the business.

It wasn’t until 18 months later that they learned what had happened: Their bookkeeper, Curavo, had been stealing from them. Over more than seven years, she systematically took a year’s worth of revenue.

“It was so damaging, what Diana did,” Calafat said. “It was something worse than holding up a bank. This was a gradual poisoning of the business.”

Curavo, believed by authorities to have taken more than $500,000 from two companies to build a fancy lifestyle for herself and her family, was sentenced in December to three years in prison on her guilty pleas to two grand theft counts and 14 forgery charges.

“She ripped them off blind,” said Michael Grosbard, a deputy Los Angeles County district attorney in Pasadena. “They put complete trust in her and she manipulated them.”

Calafat and Holst didn’t want anything to do with the paperwork--and didn’t understand it anyway. Curavo became the kindly mother, bringing them coffee and doughnuts and sweet-talking them, the prosecutor said.

“She had a flair for getting our trust,” Holst said. “I had no doubts she was doing what was best for the company.”

Hired in 1984, Curavo constructed a careful scheme. She would leave enough room on paychecks to herself so that, after one of the partners signed it, she could add some numbers. Her weekly check for $400 typically became a $1,400 check. She balanced it on the check register by adding $1,000 to the amount paid to the next party on the list.

But she became bolder after secretly affixing her name to the signature card on the company’s bank account in 1987.

“She wrote checks to herself, her husband, her daughter,” Grosbard said. “She wrote checks to the Rosemead animal hospital where she boarded her dogs while taking vacations on the company’s money.”

*

She embezzled money in all sorts of ways. While Holst was in the hospital in late 1991, she asked for money back from what she said were loans she gave the company. None of the loans were recorded anywhere.

A year later, as she left, Calafat said, she argued over $3,000 she said she was owed. Unknown to them, she was taking her last swipe at company accounts, giving herself an $8,000 check and writing on the note line, “BONUS Thank you!”

In the end, Grosbard had enough evidence to charge not only Curavo but also her husband, Jeffrey, and their daughter, Cynthia Iwanaga, all of whom pleaded guilty. Curavo’s husband was sentenced to two years in prison, her daughter to five years probation.

“Diana came to believe that what she had done was wrong,” said her attorney, Oscar A. Acosta of Pasadena, “and that the price is more than simply the sentence. It’s also the shame it brings on her and her family and the fact she’ll have to continue to live with this.

“That’s something that goes beyond what the court imposed.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Sticky Fingers

A recent nationwide study of workplace fraud and embezzlement revealed these trends:

* The average organization loses about 6% of its total annual revenue to fraud and abuse committed by its own employees.

* Fraud and abuse costs U.S. organizations more than $400 billion annually.

* The average organization loses more than $9 a day per employee to fraud and abuse.

Small Is Vulnerable

On a per-capita basis, firms with 100 or fewer employees suffer the largest losses.

Number of employees: Median fraud and abuse loss

One to 100: $120,000

101 to 1,000: $100,000

1,001 to 10,000: $80,000

More than 10,000: $126,000

Position of Power

In the cases studied, rank-and-file employees committed 58% of the fraud and abuse. However, the most costly losses were perpetrated by management personnel and owners, who have greater access to company coffers.

Who Commits Fraud and Abuse

Employees: 58%

Management: 30%

Owners: 12%

*

What It Costs the Company

Median loss, by position in organization

Employees: $60,000

Management: $250,000

Owners: $1 million

Source: Assn. of Certified Fraud Examiners