The Art of the Steal

  CHECKS AND BALANCES

  It’s essential that you separate the accounts receivable and banking functions. Receipts and deposits must balance each day, and different people should perform these functions. Different groups should also process payments, disburse checks, and do bank reconciliations. If you don’t split up these duties, then a dishonest employee can issue a check to himself, or to a co-conspirator, remove the check from the bank statement, and alter the accounting records to hide the embezzlement.

  No one person, no matter how much you trust him, should ever be in complete control of a transaction. I remember when bank loans, up to a certain limit, were issued on the say-so of one officer. Often, that officer could make loans of as much as one hundred thousand dollars. Say you’re a bank officer and I’m your college buddy. I come in and beg you that I’m desperate and need this loan. You say, “Okay, but I want something for myself.” So I give you a ten-thousand-dollar kickback and probably default on the loan. There’s a reason a committee now approves loans in banks. The same thing must happen in all businesses with all transactions.

  I’ve spoken about how vulnerable companies are through their mailroom. It goes without saying that mailroom personnel must have absolutely clean backgrounds. And you need to put in internal safeguards to discourage theft of incoming or outgoing checks. So many companies that have been the victim of an altered payee-check scam have traced the source of the original checks to their own mailroom.

  One important step is to replace your company name and address on disbursement envelopes with a simple post office box number. This box should be solely for returned checks. And you’ve got to segregate the processing of returned checks. Any checks that get returned should not be returned to the area that originally processed them. A person independent of the payment function should handle these and investigate why they were returned.

  CHECK CHECKING

  Company checks should be made secure by using some of the techniques I mentioned in the chapter on checks. All checks and cash equivalents, whether they’re preprinted or entirely blank, should be stored in a locked facility and only those employees who truly need access should have it. A physical inventory should be conducted at least once a quarter to account for every check. Zero amount checks and checks that have been canceled or voided should immediately be written or stamped “void” or “canceled” so they’re unusable. All canceled or voided checks that have a signature on them should have the signature removed. And someone other than the accounts payable processor who handled the original transaction should be responsible for accounting for all voided or canceled checks. Too often, checks that are to be canceled or voided are left lying in someone’s in-box, even though they’re still “live” checks. Employees aren’t dumb. They know that a replacement check was issued for the canceled or voided check, and so the canceled check won’t be missed if they take it.

  An accounts payable department of a city office out West had the bad habit of throwing away any checks that had been crumpled by the printer. The checks weren’t voided. A member of the cleaning crew had his own habit, which was to rescue those checks from the trash, forge signatures, and cash them for increasingly large sums of money. The thefts weren’t discovered until the account was overdrawn and more than $1 million was gone. The city, it was discovered, hadn’t reconciled its accounts in more than a year.

  All obsolete check stock should be shredded as soon as possible. Often, when bank accounts are closed or when highly secure check stock replaces old checks, boxes of the old checks are left unattended outside the locked cabinet where the new checks are stored. Some companies even store old checks on a pallet in a warehouse. Their rationale is that there’s no need to worry about checks drawn on an account that has been closed. Checks are checks. Even though an account has been closed, someone could steal the old checks and pass them on to an unsuspecting third party. And guess what? The company would be considered negligent and be held responsible for the loss.

  I tell every company I visit, make sure you empty the laser printer tray of checks and return them to the locked storage area after every check run. All too frequently, unused checks from the last check run are left in the printer tray. Anyone could find them and use them. And change keys or entry codes periodically to prevent unauthorized access to all of your secure areas.

  There was an apparel maker in the Northwest that lost a lot of money from forged company checks that an employee had stolen. The company was puzzled. It thought it had really tight controls. An audit firm was brought in and traced the problem to a handful of blank checks left lying on the printer.

  SEND US A POSTCARD!

  And don’t forget this one: make people take vacations, especially the ones who handle your money and financial records. Every employee has to be out of the office and without control over transactions for at least one week a year. Large embezzlement schemes, as I have already pointed out, often must be maintained daily, and key figures in the scheme will resist being away. And remember, most sophisticated embezzlement schemes are conducted by the long-tenured, trusted bookkeeper, controller, or chief financial officer. If any of them never takes a vacation, find out why.

  As I’ve said before, nothing is foolproof. But I’m convinced that any company that follows these steps is removing a lot of temptation. Someone who wants to embezzle is probably going to apply for a job elsewhere, where the taking is easier.

  5

  [THE ROCK IN THE BOX

  AND THE MUSTARD SQUIRTER]

  A few years ago, a young man living in New York contacted the local phone company and asked to speak to customer service. When he was connected, he explained to the representative that he gave advice over the telephone on the stock market, and he wanted to start charging for his insight.

  “Oh, so you need something like a 900 number,” the representative said.

  “Yes, exactly,” the man said. “What I want to do is charge thirty-five dollars for the first minute, and then a dollar a minute after that.”

  The customer service representative told the man that they had a number of area codes that could be set up to do exactly that: 900, 847, and a few others. “Give me an 847,” he said. He chose that code deliberately. Many people, from calling astrology or other self-help numbers, know that you have to pay when you call a 900 number. But, with the flurry of new local area codes that have been introduced in and around New York, not many people know about 847 and some of the other codes.

  In short order, the man was all set. And not to give any kind of stock advice. He sat down at the phone with the Yellow Pages. He began at the front of the directory and moved alphabetically through it. He’d pick a category: air conditioners. He’d phone a supplier and be routed to sales. Often enough, he’d get someone’s voice mail. He’d leave a message to the effect of: “I’m from Aurola Sales. I need about ten pretty good-sized cooling units, as soon as possible.” He left his new 847 number.

  A salesman would hear the message and get right on the phone. The guy would pick up, “Sorry, you have the wrong number.” Bam. He just made $35. The salesman would figure he misdialed. He’d call right back. “Sorry, wrong number.” There was another $35.

  The man would do this day after day. He’d mark his page in the Yellow Pages at night and in the morning would resume from where he had left off. Sometimes, he was given pager numbers, and he’d go ahead and page people to call him at his 847 number. Because these were businesses he was calling, they all incurred large enough phone bills that they would never detect an extra $35 or $70. For the young man, it added up quite nicely. It wasn’t long before he had cleared more than $1 million. And he was never caught.

  LOW RENT DOESN’T MEAN LOW RETURN

  It’s a deceptive world out there today, and I have to give criminals credit. They’re clever. On top of hot checks, counterfeit documents, and embezzlement at the office, there’s a whole patchwork of little scams that prolific con artists play on a gullible public, some of
them puckishly insidious. Many of them have a shape so surprising that their place in the annals of con artists is insured. They involve irresistible forces that entice even highly intelligent and wary consumers. The artful confidence man can extract money from just about anyone, because he’s an astute student of human nature and knows the power of deception.

  I think of these as low-rent scams, because they don’t involve much in the way of investment and are easy to perform, but, as you can see from that devilish telephone caper, they can generate surprising returns. In fact, the Federal Trade Commission (FTC) reports that, in contrast with crimes like bank robberies, where a lot of money can be obtained in one act, there has been a significant increase in frauds that realize relatively small amounts of cash each time they’re pulled, but defraud many more people.

  For example, a dry cleaning scam was making the rounds not long ago. Managers of well-heeled restaurants were getting a letter in which a man claimed he had recently eaten at the restaurant and a clumsy waiter had spilled food on his suit. He insisted that the restaurant pay the nineteen- dollar dry cleaning bill. The amount was modest enough that many managers simply paid it. They didn’t seem to think it was odd that the return address where the check was to be mailed was a P.O. Box. The letters went out to enough restaurants that the nineteen-dollar payments added up to real money.

  IF IT AIN’T BROKE . . .

  Some of these scams have been practiced practically from time immemorial, while others are new inventions. But many of the oldest and most clearly defined ones have a lot of vitality left in them and are more popular today than ever. One way criminals look at it is, the more tried and tested the scam, the better. If a scam has worked for decades, it’s almost like it comes with a warranty. There are literally thousands of different scams out there, of varying complexity, but let’s take a look at some of the more prevalent ones, and see how you can guard against being hoodwinked by them.

  One of the oldest scams around is still going strong, and that’s the short-change scam. It’s a classic. Deftly performed, it can be deadly. Back in the old days, I used it myself on more than a few occasions. Just about any con artist who’s had any success is pretty proficient as a short-change artist, and practitioners show up in abundance at all major public events. Hundreds of short-change artists worked the recent Summer Olympics in Australia and took away plenty of gold.

  Here’s a simple version of how this persistent scam operates. I go into a deli and pick up a can of soda and a bag of chips. At the register, I pay for it and collect my change. I’m about to leave when I turn back to the clerk and say, “Oh, by the way, can you break a twenty for me?”

  “Sure, no problem,” he says.

  The clerk hands me a ten, a five, and five ones.

  I examine the bills in my hand, and say, “Actually, I didn’t want all this change, could I trouble you for a ten for this five and five ones?”

  “Certainly.”

  While he’s fishing in the drawer, I keep up a patter of idle conversation. When you’re pulling a scam, inane conversation is your best accomplice, because it distracts someone from concentrating on what he’s supposed to be doing.

  The clerk gives me a ten and I hand over my bills and say, “You might want to count that, just to make sure that I gave you the right change.”

  The clerk proceeds to count the money and discovers that I gave him a five and four ones. He tells me, “I’m sorry, sir, there’s only nine dollars here.”

  I say, “Let me tell you what, so we don’t get confused let me just get my twenty back. You have nine dollars, here’s one more to make ten and here’s ten to make twenty.”

  “Fair enough,” the clerk says. “Thanks much.”

  What’s wrong with this little scenario? I just short-changed that clerk out of ten dollars. Add it up. I gave him twenty. He gave me twenty in change. We’re even. I gave him nine dollars. That means I’ve got twenty-one and he has twenty-nine. Then I take my twenty back and hand him eleven. I’m left with thirty and the clerk has twenty, giving me a net gain of ten. It’s a quick little profit that can be duplicated over and over again at store after store. If I had started out by giving the clerk fifty, he would have been short twenty dollars. If he had been given a hundred, he would have been out forty.

  WHAT TO DO

  To protect yourself from being short-changed, the important thing is to never do more than one transaction at the same time. Always complete one transaction before you begin the next one. Short-change artists try to confuse you with two transactions at once, change for a twenty and change for a ten. If you’re confused, you can rest assured that the short-change artist has it perfectly clear in his head what’s going on. And never make change until you have the full amount in your hand.

  When someone starts talking to you while you’re handling money, ignore them and focus on the exchange at hand. A good short-change artist is like a magician; a moment’s lapse in concentration and you’ll be had. Johnny Carson once invited me onto the “Tonight Show” and dared me to fool him while he was fully expecting to be scammed. I had no problem shortchanging Johnny out of twenty dollars twice in five minutes. The audience loved it.

  One final note. The short-change artist can be on either side of the counter. It can be the cashier short-changing the customer, or it can be the customer short-changing the cashier.

  PHONE FOOLERY

  I don’t know how con artists made ends meet before the invention of the telephone, because for a long time, the telephone has been a con artist’s handiest weapon. You can make a lot more with a phone than you can with a gun, and it doesn’t require a mask. Phone scams exist in all shapes and forms.

  The ringing pay phone is one of the most common. You’re in Grand Central terminal, and you need to make a pay phone call. When you get to a bank of phones, one of them starts ringing. You pick it up, and say, “Hello?” There’s no one there, so you hang up, then pick up the receiver again to make the call.

  Guess what? If you didn’t hang up for thirty seconds (as opposed to just five or ten seconds on a home phone), there’s still someone on the other end, and not who you’d like it to be. When you dial your number and your credit card, someone has a tape recorder on the other end and is recording those beeps. A criminal can very easily translate them into your credit card number.

  When I hear a ringing pay phone, I pick it up, hang it up, then go use another phone.

  There are a whole host of variations on the call-back scam like that first one I told you about that exhausted the Yellow Pages. One that regularly shows up in people’s e-mails and on their answering machines involves a message to immediately call a certain number beginning with the area code 809. The reason why will vary, but it will be something designed to get your attention: a relative is very ill, a friend has been arrested, you’ve won a vacation in Tahiti. With all the new area codes these days, most people don’t get hung up on the unrecognizable code but go right ahead and place the call. You’ll either get a lengthy recorded message or someone will do their best to keep you on the line as long as possible. Meanwhile, a huge charge is being run up on your phone bill, a bill that can run into the hundreds and even thousands of dollars. I’ve heard of people getting bills in excess of twenty-five thousand dollars.

  Here’s what’s actually going on. The 809 area code is located in the British Virgin Islands. It’s a “pay-per-call” number, similar to 900 numbers in the United States. But since it’s not located in the United States, the number isn’t covered by American regulations of 900 numbers that stipulate that you must be notified and warned of all charges. There is also no requirement that the company offer a time period during which you can hang up without being charged. And, unlike with 900 numbers, you can’t put a block on your phone to avoid these calls.

  The whole thing is such an obvious rip-off, and you’ve done nothing wrong. But trying to fight those charges can be nearly impossible. After all, you did make the call. Your local or long
distance carrier will not be much help. They’ll probably tell you they are simply providing the billing for the foreign company. That leaves you with a foreign company that will argue that it has done nothing wrong, either. So the solution is, beware of calling a number that you don’t recognize, particularly one with an unfamiliar area code. By calling the operator, you can quickly determine precisely where that area code is.

  Then there are the scams that combine the phone and the credit card. A guy calls you up on the phone: “Mrs. Jones, I’m delighted to inform you that you’ve just won a brand-new, nineteen-inch color Sony TV.”

  “Oh yeah, what’s the catch?”

  “No catch at all. Nothing to sign, nothing to buy. We simply ask you to pay freight and we’ll ship it to you today.”

  “Oh yeah, how much is that?”

  “It’s just nineteen dollars. And you can put it on your credit card.”

  “Okay, great. Let me get my card and give you the number.”

  Mrs. Jones’s TV is not on the way. But her credit is on the way out the door. Never give information over the phone to someone you don’t know. If an offer sounds too good to be true, then it probably is.

  The same thing goes for advertisements. A man was arrested in Florida and found to be bilking consumers in thirty-four states. His con was simple and straightforward. He ran ads in magazines that promised to send people a Visa card or a MasterCard with a $10,000 limit. There would be no credit check, and no questions asked. All that was required was a fee of $32.95. People sent their money and heard nothing. Sure there were no questions, but there was also no card. The con artist did see fit to send some of the respondents a generic list of banks that issued credit cards. In many of the cases, the victims simply swallowed the loss and never even reported the crime to the police. That was good for the perpetrator. By the time he was caught, he had bilked more than five thousand people.