Do the Prosecution Thing

The Business Journal of Milwaukee
By Kathy Bergstrom

Johnny Vassallo wants to send a message in his pursuit of a forgery case against his former employee. Rather than simply firing his bookkeeper and seeking restitution, Vassallo, owner of Mo’s, A Place for Steaks, 720 N. Plankinton Ave., worked to make sure the Milwaukee restaurant’s bookkeeper was charged criminally for forging checks.

“We’d like to send out a message that it’s not the right thing to do,” Vassallo said of the theft. Vassallo also owns Mo’s Market – A Place for Wine, a wine market/bar at 717 N. Plankinton Ave., Milwaukee, and Ten Eleven, a restaurant in the Park East Hotel, Milwaukee.

The employee, Lisa Hillsley, 33, of West Allis was charged Aug. 8 with three counts of forgery. Hillsley forged checks and took bank deposits that she estimated to total between$12,000 and $20,000 according to the criminal complaint in the case.

Hillsley’s bail was set at $15,000. She has been unable to post it and remains in jail. A jury trial has been set for Oct. 7. Hillsley’s lawyer, James Hanley, could not be reached for comment. Hillsley is from Australia, and Vassallo said he hired her in January after doing some minor background checks. “We thought she was a good employee,” he said.

The restaurant has made some changes in its processes to prevent similar fraud from occurring again and is now doing a painstaking audit of its books to determine how much theft actually occurred.

While many small business owners might accept embezzlement as “a cost of business,” Vassallo said it was important to get the police involved. If he didn’t pursue charges, “she could just go next month and start doing this to somebody else.” Vassallo expects to be reimbursed for the loss through insurance.

Vassallo said the company’s system of checks and balances was weak, and changes have been made. Local accountants who specialize in internal audits and forensic accounting say Vassallo is probably in the majority of small business owners who are pursing charges against employees who steal.

Once fraud has been discovered, companies have to do their own internal investigation in addition to contacting law enforcement officials, said Tom Martinez, director of internal audits for Jefferson Wells International’s Milwaukee office. A certified fraud investigator can ensure that methods of investigation don’t jeopardize a criminal case.

Hiring a forensic accounting service is probably most cost-effective for a company that suspects its loss is $25,000 or greater, said Tracy Coenen, owner of Sequence Inc., a forensic accounting firm in Milwaukee.

Small businesses sometimes are vulnerable to fraud because they have trouble segregating duties, accountants said. Small businesses have fewer employees among whom to spread bookkeeping duties, said Martinez.

Another vulnerability is that small businesses can have poor internal controls, Coenen said. Internal controls ensure that one person doesn’t have too much responsibility over one area, she said.

Martinez and Coenen said creating an environment that lets employees know the company is keeping tabs on fraud is one of the most important ways to prevent it. That involves creating and communicating ethics policies and creating a system that allows employees to anonymously report theft. Forcing employees to take vacations of a week or more at a time can also help ensure fraud isn’t occurring, Coenen said.

One technique that many small companies use is a checking service with their bank in which the company sends a list of all payees to its bank, Martinez said. Payees must be on that list in order for the bank to cash the check, he said. Some companies are requiring the employee who handles accounts payable to use a specialized blank check stock and secure laser printers to print all approved checks, Martinez said.

Another simple way to check for fraud is having bank statements sent to the business owner’s home, so he or she can look at the statement, Coenen said. Bank deposits should be verified daily by an employee who isn’t depositing the checks, Martinez said. Companies that review their cash position daily will scare people away from trying to commit fraud, he added. Businesses also are likely to catch it more quickly and limit damage, he said.

Some of the changes Mo’s has made include requiring anyone who makes a cash deposit to bring back the bank deposit slip and place it in the deposit book. That was always the system, but it was not being followed, Vassallo said. The company is now issuing a limited amount of checks and has hired a new bookkeeper.

No checks will go to anyone who is not on a payable list, and they must have a signature stamp that is locked in a safe accessible only by the company’s chief financial officer. The company is also running credit checks on key employees and will make sure the bookkeeper is bonded.

Hillsley stole more than money from the company, Vassallo said. “It definitely had an effect on the trust levels between staff,” he said. “You just look at everybody differently.”

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