Call her Jane Jones. She was a veteran and valued office manager at a south San Francisco construction subcontracting firm, and she had a problem. Her granddaughter had multiple sclerosis, and the family couldn't cover the bills.
So Ms. Jones, whose name has been changed, began embezzling a few thousand dollars a year.
It was easy.
She created a dummy corporation that ostensibly provided contract construction laborers and added it to a list of similar companies her boss actually used.
She wrote checks to the dummy corporation, then deposited them in an account established under its name, and took the money.
Her boss had to sign the checks, but they were scattered among many others and he didn't notice.
Later, as the company grew and added more contract labor firms, Ms. Jones concocted additional dummy corporations and stole more than $100,000 a year.
She got nabbed only because business slowed. The company began reducing its bids on jobs and still found itself losing money on each one, so the owner began examining his books. When he did, he saw vendors he didn't recognize.
Ms. Jones ultimately confessed -- but not before the company went bankrupt.
Accountants and other small business experts say there is a lesson here.
Embezzlement is surprisingly common at small businesses, especially in the front office.
That's where the office manager or bookkeeper -- almost always a longtime trusted employee -- is in charge of both paying the bills and reconciling the books.
The owner often doesn't have the time or inclination to check up on the process.
As the Jones case shows, the result can be catastrophic.
"It doesn't take a genius for someone like this to steal money from a company and get away with it," says Rick Rosario, the loss-prevention manager at Redwood City-based CAMICO Mutual Insurance Co., California's largest CPA malpractice insurance carrier.
"Somebody just needs a trusting boss, an understanding of the bookkeeping system and a motive to steal."
It's difficult to quantify the extent of small business embezzlement.
For the most part, experts say, only employees who do it chronically get caught. Even when they are discovered, they are rarely prosecuted.
Embarrassed business owners don't want word to leak out, and the employee has usually spent most of the money already. Owners have little to gain by pressing the case.
Men embezzle more
Nonetheless, some experts believe that embezzlement occurs in the majority of small businesses. And the amounts are significant.
The Association of Certified Fraud Examiners completed a study of 2,600 apparent fraud cases late last year and found that the median take among men who were caught was $185,000, among women $48,000.
Embezzlement is a relatively minor problem at big companies because they have systems in place that segregate check-writing responsibilities from bookkeeping responsibilities.
But small businesses are based much more on trust. "It may sound harsh, but too many owners trust key employees more than they should," says John Shilling, president of Shilling & Kenyon Inc., a San Jose, Calif., CPA firm. "Internal controls should be based on systems, not trust, and that's often a hard transition for entrepreneurs to make."
Mr. Shilling believes the problem is getting worse because small business owners are focusing on sales rather than scrutinizing operations. He also believes there is growing resentment over the disparity between what owners pay themselves and what they pay their employees.
"It's human nature to take this the wrong way," Mr. Shilling says, "and some people use it as an excuse to steal."
CPAs and fraud examiners say it's ludicrously easy for employees who both write checks and maintain the books to embezzle. Checks can often be cashed without signatures, especially if the amount is under $500.
Most banks readily cash checks that have been made out to one person but endorsed by another to make it payable to himself. That's why the experts urge small business owners to check their books, at least occasionally, and to make it known that they do.
"If a business makes enough money and an embezzler doesn't get greedy, it's not going to get discovered if the owner doesn't make a conscientious effort to keep on top of his books or hire somebody else to do so," says CAMICO's Mr. Rosario.