Part 4 of 10, Fraud Inoculation

Part 4 of 10


Egg-shell fragility reigned at this firm for three years after the embezzlement became public. When the initial shock wore off, and forensic accounting issues became less important, I became the Interim CFO and soon interviewed and hired, as another 1099 employee, a skilled, untainted person to do the daily accounting. Because she and my firm both had other clients, we attempted to make our time spent at this firm as efficient and effective as possible.

Though filing for bankruptcy protection remains a possibility today, soon after the discovery of the fraud, the owner president met with the eight main vendors and creditors (those owed more than $50,000 each) offering them a delayed payment plan or pennies on the dollar as no more was available. Their collective immediate response was “no, never.” Yet when the full force of the economic downturn became plainly evident to all, including the questionable survival of many large firms in Arizona, these vendors, lenders and landlords finally started listening to the arguments of this firm’s owner, wrenching though they were.

All told to date, without filing for bankruptcy, major liabilities totaling over a million dollars were settled for either 10 or 20 cents on the dollar or repayment plans were spread over multiple years in the future, usually the distant future. Almost no repayment of large liabilities happened during the first two years after the embezzlement became known, as business survival and a reasonable prison term for the fraud perpetrator were the owner’s two major priorities.

No financial institution would lend money to this firm, therefore we paid a usurious rate of 35% to borrow capital against our credit card receipts to use to republish our main sellers. Even factoring receivables was seriously considered, though not chosen. Somehow, the owner’s Houdini-like contortions proved sufficient, though his time-absorbing actions likely contributed to his marriage failure along the way.

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