by Laurence R. Stains

Yoo-Hoo, Katherine Marshall!

Please come out, Katherine, wherever you are! We have a few questions for you. Even though it’s been more than a year since you left, we’re still in shock. When we hired you to be the part-time bookkeeper at our Philadelphia preschool, you seemed like the perfect person for the job. You were mature, efficient and cheerful; you had good business references that our outside accounting firm checked out. And best of all, you were the grandmother of one of the kids! You were family, Katherine.

When you didn’t show up for work one day, we were worried, of course. We tried to call you, we tried to find you at your apartment - but you were missing. And, funny, so was the preschool’s monthly bank statement. Then our checks started bouncing, and we called the bank, and $11,100 was suddenly missing too!

Boy, do we have a few questions! Like: Did you really steal eleven grand from a poor little nonprofit nursery school? Your own grandson’s nursery school?

By the way, the folks at the District Attorney’s Office have a few questions, too. They also have a warrant for your arrest. But you probably already know that.

KATHERINE MARSHALL HAS BEEN CHARGED WITH SEVEN COUNTS each of theft by unlawful taking, theft by deception, and forgery. In common parlance, she's been accused of embezzlement. Embezzlement is an old Anglo-Norman word for an old, old ruse – taking what you were entrusted with. Over the centuries, it has evolved into a generic wrong, rather than a specific crime. Nowadays, it gets tagged onto just about anyone who, in a sneaky, underhanded sort of way, steals from an employer.

No employer is exempt. Not only banks and credit unions, but restaurants, warehouses, hospitals and oil companies get ripped off. So do doctors and lawyers and judges. Colleges. Department Stores. Trucking firms. – it’s so easy for some trucker who’s moving 30 refrigerators to fence them, then call the cops with some sob story about their all being stolen from the motel parking lot last night.

Businesses big and little, new and old, badly run and well run. Even, no kidding the Philadelphia Better Business Bureau, which was taken for $10,744 a few years ago by a temporary bookkeeper named Barbara Dingle.

So why not a poor little nonprofit? Nonprofits are notoriously vulnerable. Often their debits and credits are managed by one part-time person with a checkbook. Who’s looking over that person’s shoulder? Maybe a full-time person with absolutely no head for figures. Maybe only a board comprising overly busy people who donate a couple of evenings a month. At best, the sorts of cumbersome accounting procedures designed to reduce embezzlement – what accountants call "controls" are barely in place. At worst, some of the low-budget nonprofits, such as boys clubs, keep such shoddy records that thefts cannot be prosecuted.

We may not like what it says about human nature, but the fact that a nonprofit is run almost on faith, by people of good will, makes it more of a target, not less of one. The Church of the Holy Trinity on Rittenhouse Square in Philadelphia wanted so very much to trust a homeless man that it hired him to be sexton. He stole 14 checks, cashed them for $11,300, and is now a fugitive. He knew an easy mark when he saw one.

I can’t say our preschool was such an easy mark. But I must say, we got off easy. Ours was a comparative mosquito bite; as often as not, embezzlers are giant leeches. The Philadelphia-Montgomery County Office of the American Lung Association was relieved of $129,627 by its director of business affairs, a 41-year-old Wayne woman named Nancy Stedman. She forged 15 checks over a 20-month period. St. Christopher's Hospital for Children was defrauded of about $800,000 by a 60-year-old payroll clerk, Sonia Lipton. She issued fake bonus checks to employees and forged their signatures. Over in Camden, Cooper Hospital was bilked of $4 million by its executive vice president, John Sullivan; its controller, John Lashkevich; and a Vineland vendor, John Crispo. John, John and John set up your garden-variety phony billing scheme – John sent invoices for services never rendered; John and John approved them. It went undetected for years.

Those are among the scores of cases reported by this newspaper in the last year, in flat, dry prose. No big whoop. But when added up, all across America, the crime of embezzlement emerges as a multibillion-dollar drag on the nation’s economy. How much of a drag? Estimates are wildly divergent –from $1 billion to $200 billion – because nobody knows.

It’s really everywhere," says Laurence Barton, an associate professor of management and organization at the Great Valley Campus of Pennsylvania State University. For his book The Enemy in the Workplace, published last fall, he surveyed the Fortune 200 – the 200 largest, and presumably best-run, corporations in America – to gauge the true extent of embezzling. He heard back from 136 of them, and 40 percent of those respondents admitted to being embezzled within the last two years for amounts greater than $25,000.

Those are the embezzlements, he emphasizes, "that they had caught. Imagine what we don’t detect," he says. "Embezzlers can be incredibly resourceful at covering their tracks." It is a crime, says Barton, that transcends all businesses and strikes at all phases of the typical cycle of growth, maturation and decline.

Embezzlement is not a matter of if, but when.

Consider this fact from Barton’s book: Bank employees steal 11 times more money than bank robbers.

If it’s that bad, shouldn’t we be reading about embezzlements a lot more often than we already do? We should, but local prosecutors say they get only a tiny fraction of the cases they believe are out there. Most victims are simply too embarrassed to come forward. "Fear of embarrassment is paramount," Barton explains. "A case of embezzlement can make you look incompetent to your customers, to your vendors, and to competitors – who are going to seize on it. So when a company finds out about an employee theft, they’ll dismiss the employee, they’ll say he’s retired early." They sometimes give severance pay to avoid a lawsuit! The pressure becomes overwhelming within the organization to say, "Let’s just settle."

Now you know why I haven’t named my preschool. I’m just like everybody else: I don’t want to see the school’s reputation tarnished; I don’t want to see it lose enrollment and enthusiasm. But besides that, I know about the case only because I was serving on the school’s board of directors at the time. Although Katherine’s arrest warrant is public record, most of the surrounding circumstances are not.

Yes, I may be telling tales out of school here. A cautionary tale.

AS OUR PART-TIME BOOKKEEPER, Katherine Marshall’s job was to keep track of tuition payments and to pay our bills. That took a load off our director, who was hired for her skills in early childhood education, not accounting, and ought to be knee-deep in Legos rather than ledger books. Katherine was supervised by the director and by our accounting firm, as well as by the board’s treasurer.

Katherine was an attractive woman who dressed attractively. She usually worked about 10 to 15 hours a week, and was paid $11 an hour – hardly enough to pay for her lovely wardrobe. Because her hours were part-time and varied, she was not included in our payroll services. So she wrote out her own paychecks, and the director would sign them.

She began working here in February 1993. Six months later the trouble started.

When she received her $159 paycheck on Aug. 6, she had our director sign it, and she entered its original amount in the ledger. Then, according to the arrest warrant, she altered it – easy enough, considering it was her handwriting to begin with. She rewrote the script and cleverly left space in the numerical box to add a "1."

Voila: a paycheck for $1,159. The next week her paycheck of $303 became $2,303; in the weeks after that, checks of $360, $264, $222, $32.76 and $216 all had 1s and 2s added. By Friday, Sept. 10, according to the arrest warrant, she’d altered checks to the tune of $11,100.

On Monday, Sept. 13, she didn’t show up for work. We got a resignation letter a week later.

Katherine stayed around just long enough for the school’s August bank statement to arrive in the mail – which would show that some of those checks had been cashed in their altered amounts. When she left, the bank statement was nowhere to be found. The remainder of the checks were then cashed, wiping out the school’s account. In late September, when our checks started bouncing, we called the bank. But by the time we got a duplicate of our bank statement, and contacted the District Of Attorney’s Office, all seven checks made out to Katherine Marshall had been deposited or cashed.

By early October, the board had the very sorrowful task of writing a letter to all the school’s parents announcing "one issue of significant concern." We said exactly what had happened and what we were doing about it; we listed our home phone numbers at the end and announced a meeting to discuss it the next week. We assumed that one group of parents would be especially upset – those who had worked the hardest on a very successful fund-raising auction some months before. That auction had raised more than $8,000. What a colossal success. This was thrilling. At last we had the beginning of a nest egg, a financial cushion that would provide real improvements to the facility, or maybe even be put toward an annuity we could buy on behalf of our incredibly loyal teachers, so we could at least give them something in the way of a pension after they retired.

The group’s response was, indeed @#*! She stole the action money! Indeed, there was a window of opportunity left wide open, a checking account with extra funds in it. While we ironically, debated a better investment decision, it seems Katherine Marshall climbed in the window.

The amount of money in question was just over the $10,000 limit that the Philadelphia’s D.A.’s Office will usually investigate. It’s a completely arbitrary limit, prosecutors admit, that allows them to focus their limited resources. If you’ve been embezzled of $2,000 to $10,000, you call the police and hope that, in this crime-ridden city with a prison cap, they’ll be able to help. (Embezzlements of less than $2,000 are misdemeanors; good luck.) But our case was assigned to Harriet Brumberg, one of six assistant district attorneys in the Economic Crimes Unit, and to Stephen Snyder, one of the unit’s four detectives.

As it turned out, Brumberg was a particularly good choice for the job. Her children attend a private school that suffered a similar fate. Back in the early 1980’s its parents association decided to open a separate account for its funds which due to various fund-raising efforts were considerable, and placed them in the care of their treasurer, the late Elinor Eglinton. Mrs. Elinor Eglinton was responsible for the funds until June 1990, when her daughter graduated and she was no longer eligible to be a member of the association. The president of the parents association asked for a full and final accounting of the fund. After many broken appointments, Mrs. Eglinton finally confessed – she’d taken $80,000. She spent it on herself, she paid the bills of her husband’s failing electrical business, she used it to pay her daughter’s tuition. And then she died. There was really nothing left: less than $2,000 and a pile of unpaid bills.

You couldn’t ask for a prosecutor with more simpatico.

CRIMINOLOGISTS HAVE TWO COMPETING theories about embezzlers. The dominant theory is a slightly updated version of Donald Cressey’s classic 1953 study, Other People’s Money. Up to then, embezzle-ment had a definite film-noir cast to it – the best minds in law enforcement considered it to be a crime caused by "wine, women, wagering," "bookies, babes, and booze." Cressey, to his credit, pushed beyond the B-movie image. He and his followers have stipulated four elements to every embezzlement: (1) There is a an unshareable financial problem or hidden pressure, which may well be addiction or gambling debts, but could also be a sick parent; (2) the embezzled money would solve everything, (3) the offender has the knowledge and opportunity to pull it off; (4) the offender can convince himself that he’s not a criminal - that he was underpaid, or mistreated, or he’ll pay it back, or God really owes him big-time. Somehow, the offender rationalizes the crime.

According to this theory, embezzlers should be ordinary people who crack. Maybe life has passed them by. They haven’t committed crimes before and, when caught, they break down and sob. When you get right down to it, they’re sad sacks.

The dueling theory of embezzlement grows out of a 1990 book by Michael Gottfredson and Travis Hirachi, A General Theory of Crime. This theory says phooey to all the stuff about unshareable problems; embezzlers are just like any other criminal. They just don’t know how to behave! Or, to put a more theoretical point on it, they have "low self-control." Their gambling debts and addictions, and tawdry affairs and car accidents are not a cause of their crime, but parallel consequences of a low self-control personality. According to this theory, embezzlers are schemers. They’ve committed other crimes before, and they’ll do it again. Gary Green, an associate professor of criminal justice at Albany State College in Georgia who got his Ph.D. at Penn in 1981, subscribes to the Gottfredson-Hirachi hypothesis. In fact, he decided to test it by studying the 229 persons arrested for embezzlement in Georgia in 1982. He found that, by 1990, two-thirds of them had other arrests.

Both theories have their appeal and describe some embezzlers very well, but each has its limits. In fact, no single theory of criminal behavior has ever been made to fit all crimes. If there is one predictor, however, that no longer serves to describe most embezzlers, it is gender. Figures are sketchy since the FBI does not keep track of embezzlers by sex, but experts and prosecutors all note the increasing numbers of women on the take. Some say close to half of all embezzlers are female. There are lots of contributing factors. Close to half the workforce is female. Abut 70 percent of all embezzlements are committed by workers in the accounting or finance departments, and the lower echelon of those areas historically have been pink-collar ghettos.

Only 12 percent of violent crimes in 1992 were committed by women. By comparison, embezzlement is darn close to being gender-neutral.

And so, even though our preschool is still in shock, I suppose we shouldn’t be. If a grandmother picks off a poor little nonprofit -–well, that’s what embezzlement is all about! As it turns out, our predicament was pathetically ordinary! Whether Katherine Marshall was a sad sack or a schemer, we may never know. But it would seem she did feel at least a twinge of remorse.

AMONG THE EVIDENCE WE HANDED OVER to Detective Snyder was Katherine’s resignation letter, which verged on being a confession – she wrote that she was sorry for any harm she had done to the school. It will be one of the prosecution’s exhibits if she’s ever apprehended. So will our monthly bank statements, microfiche copies of Katherine’s altered paychecks, and our altered ledger book.

Our case was fairly straightforward. Everyone’s job would have been tougher if those checks had been taken to a check cashing service, or deposited in a shell corporation or something slick like that. But no: Katherine Marshall’s checks simply ended up in her own Meridian Bank account, and her account number was even thoughtfully written on a couple of the checks, making it supremely easy to amass the evidence. The checks were altered here, cashed there. Forgery here, theft by unlawful taking there. Says Brumberg: "There wasn’t much mystery left."

With our case put together, Detective Snyder wrote out an Affidavit of Probable Cause to Arrest and presented it to Judge Ronald B. Merriweather, who thereupon signed a warrant for her arrest.

During this time, the entire school felt the frustration of being a crime victim. Our particular frustration of being a crime victim. Our particular frustration could be summed up with this man-in-the-street question: Why is it that, if somebody robs $100 from a Wawa. A suspect will be in custody later that night – but if that same somebody steals $11,100 from a preschool, it takes two months to get an arrest warrant?

Because, explains Brumberg, embezzlements rarely have eyewitnesses. If there’s an eyewitness to a crime, police can make an arrest. Without an eyewitness, prosecutors must gather all their evidence upfront before getting an arrest warrant. And what a pain in the neck that is: Embezzlers run off with the evidence, or erase it from a computer; bank records have to be researched and well, you know what it’s like to wait in line at a bank. Most of the Economic Crimes Unit’s cases take six months to a year to compile. Our two months was actually very quick.

Still, by late November 1993, Katherine was long gone. Detective Snyder had been looking for her from the start. "We always give our defendants an opportunity to come in and explain," as Brumberg puts it. He went to her apartment at the Rittenhouse Claridge. He talked to her landlord and her daughter. He returned calls that had come in at the school for Katherine after she’d vanished. As with all fugitives, her name and description were entered in the Pennsylvania Crime Information Computer, which goes out to police departments all over the state. If you’ve ever been stopped by police for a moving violation, have you wondered why the officer asks for your license and registration, then takes it back to the squad car and sits there forever with it? Just seeing if you’re in the PCIC. "That’s how we get a lot of our fugitives," Brumberg says.)

All in all, Detective Snyder did the gumshoe work that fills good detective yarns: checking tax and Social Security records, checking deeds to see where in the United States she might own real estate – does she have a little hideaway in Minnesota, maybe? He checked all the records under her previous married names – she’d been married at least twice before. Detectives can check for possible addresses in lots of places – utility billing departments, voter registration rolls, welfare offices. They can look at credit card records, notice that the perp eats at a certain restaurant all the time, and visits the restaurant.

Given the technology today, just about anyone can be found. Anyone, that is, who has a life – a job, a home, a family, a credit history. Embezzlers usually have all that stuff. So, it’s rare that the Economic Crimes Unit doesn’t get its man or woman. He or she would have to be actively, diligently in hiding.

That would be Katherine Marshall, who went on the lam with a measly eleven grand.

We’re still doing things," says Brumberg, "We want her."

WE WANT HER, TOO. But most of all, we wanted our money back. From the start, getting back the money was paramount. Restitution it’s called in the world of criminal law, and we wanted it bad. Judges usually include it in the sentencing provisions for convicted embezzlers. Sometimes it’s a laughable notion: the money’s all gone, and the $77.03 that will be taken out of the embezzler’s wages every week will not begin to make up for the half million blown at the casinos. At least our $11,100 was realistic. But as the weeks wore on, we despaired of ever seeing it again.

Then the heavens opened, and God smiled on us. We found out we had fidelity insurance.

Due to the foresight of a previous treasurer, our school’s overall insurance policy had not one, but two different types of coverage: $10,000 against forgery and check alteration, and $40,000 against employee theft. Since Katherine was, technically, an independent contractor instead of an employee, we couldn’t collect the full amount. But we collected $10,000. We were ecstatic. When the board chairman announced it to the board, some of us tipped back our heads and yelled. Others quietly buried their heads in their hands.

To all other nonprofit board members, we can only say: Please review your insurance policies ASAP.

Fidelity insurance covers employers from acts of employee dishonesty. It can be included as part of a basic property and casualty policy; that’s the least expensive way to buy it. It can also be purchased as a separate policy, in which you can set higher limits and broader conditions that are tailored to your particular enterprise. The cost depends on your type of business, number of employees, assets, and the number and location of your operations.

In 1992, American businesses collected slightly less than $1 billion in damages from their fidelity insurance policies. That probably wasn’t enough to cover the actual damage done.

Some businesses don’t carry enough insurance; other places never heard of it, don’t have it, or heard of it but don’t have it anyway. You would a think, for instance, that an insurance agency would have it for its own office right? Well, a Prudential Insurance agency in Philadelphia didn’t have it – and had to suck wind when one of its sales agents, Susan Beaford, siphoned off $13,870.67 recently.

Fidelity insurance is the only recourse given the universality of embezzlement and your inability to prevent it. Oh, you can probably reduce your risk via accounting controls. And if you subscribe to the low-self-control theory of criminal behavior, you can imitate Ross Perot and constantly monitor your employees for any tell-tale indulgences. You can also do what fewer and fewer employers do these days; run a criminal record check of prospective employees.

That may sound like a pain, but it’s not a bad idea. Because Katherine Marshall is out there somewhere, and she’s probably trying to find work as a mature, efficient part-time bookkeeper.

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