I recently read a letter published by former business manager, Jonathan Schwartz. “I am writing this open letter to you,” he said, “so that you can learn from my mistakes and never find yourself in the situation I am now in.” Schwartz recently pled guilty to embezzling $7 million from his clients, including celebrities like Alanis Morissette, and his business partners in order to fuel his gambling addiction.
This is not the first time, nor will it be the last, a trusted executive has been ousted in a big time fraud scheme, but despite the amount stolen, Schwartz’s story isn’t so different from other individuals who commit fraud on much smaller scales.
It’s human to make assumptions about someone based on their criminal history, or lack thereof. After all, that’s why we do background checks on potential employees. It’s often because of this small assurance, we are flabbergasted when fraud is uncovered at our business, with our money, by one of our employees.
The first thing you might be tempted to ask your hiring team is — why didn’t we do a background check? Only to be all the more confused when they respond, with paper proof — we did!
It doesn’t surprise me that Schwartz had no criminal record. In fact, in his letter he describes himself as having “a great family, a job that I loved and high-profile clients that I represented, partners whom I respected and respected me, and a reputation in the community for hard work, excellent service, and commitment to charities that helped the less fortunate.” He seemed to have it all, and this isn’t unique.
I won’t get into the weeds of the psychology of fraud, but I will say this — making assumptions that certain employees won’t commit fraud because they have no criminal history, a good attitude and seem pretty trustworthy, far too often leads businesses to trust people they shouldn’t.
People can convince themselves to make terrible choices when it comes to money. Employers are often stunned when a fraudster is uncovered at their business, even more so when management has a close relationship with the individual and probably would have helped them if they’d just asked.
Fraud often starts small — $100 from the cash fund here and there, adding a few personal items on a reimbursement request once in a while — and often grows. Schwartz wrote in his letter, ”At first, I ‘borrowed’ a little from clients, with the hopes that I would pay them back if I won that night's bet. That snowballed, and as I kept losing, I kept stealing. I kept telling myself that I just needed one lucky break, and I'll pay them back. That lucky break never came…”
Unfortunately, this justification is not uncommon. When we trace back the origin of fraud, we often find similar trigger points — big life changes (like divorce, an influx of new bills, etc.) or addiction. In the case of Schwartz, his gambling addiction was ultimately the catalyst for his fraud.
Fraud is an ugly business. When a business manager steals from a client, let alone his own business partners, it forces each of us to ask hard questions like — do I really trust the person who manages my money?
Everyone wants to believe we’ve made the right choice with whom we trust our livelihood, but mistakes will happen. We like to convince ourselves that we are incapable of overlooking fraud at our business, but given that the Association of Certified Fraud Examiners now estimates the typical business loses 5% of their annual revenue to fraud, it seems we are not the deceit detectives we imagine ourselves to be.
In the case of Jonathan Schwartz, he was caught and now must pay the penalty for his actions. However, stories of fraud do not always have pleasant endings for businesses, who may not discover the act occurred until years later, after the employee is gone, and no one is left to hold responsible.
If you suspect fraud in your organization, you’ll want to sit down with a fraud expert as soon as possible. When it comes to suspected fraud, you want a seasoned investigator who has the expertise and knowledge to spot a fraudster and, if needed, perform a fraud investigation and help prosecute the offender.
Contact us online or call 800.899.4623.