Barbara Chalmers, 74, pleaded guilty in December 2022 to an embezzlement scheme of at least $29 million over the past decade. Ms. Chalmers was the bookkeeper for a charitable foundation and multiple companies run by the family of Jim Collins, a prominent Dallas businessman and former congressman. The family operates Collins American Capital Corp., International Family Investors LTD and the James M. Collins Foundation.
Let’s look at how she did it and the red flags that were missed along the way.
How She Did It
Ms. Chalmers admitted that starting in 2012, she began to write at least 175 fraudulent checks to herself that she then deposited into her personal accounts. She used more than $25 million of the stolen money to fund her own construction business, according to federal prosecutors.
Ms. Chalmers provided falsified paperwork to tax preparers that would misstate the amount of cash on hand at year-end for the multiple accounts she was embezzling from.
After the death of Mr. Collins’ wife, Dorothy Dann Collins Torbert, who had previously owned and managed the family’s corporate entities, her descendants took over ownership of the family businesses. It was then that they reviewed bank statements and identified “several alarming red flags involving Chalmers,” according to the lawsuit that they filed against their former bookkeeper in 2021.
The initial red flags included dozens of unauthorized checks written to Chalmers from various accounts in the two years prior to Torbert’s death. These checks totaled to more than $5.7 million. As the theft was investigated, it was determined that the total amount was significantly larger and involved years of fraudulent activity beginning in 2012.
Following her guilty plea, Ms. Chalmers faces a maximum penalty of 10 years in prison.
How to Minimize the Chance for Fraud
So how can a family office protect themselves from being the victim of fraud? While it is not always possible to prevent a fraud, or detect when it is occurring, there are some steps that can be taken to minimize the risks. These might include:
Perform criminal background and credit checks
Follow up directly with references provided
Personally interview the candidates
Arrange for all bank statements, credit card statements and loan statements to be delivered directly to you for distribution to the bookkeeper
Scan bank statements for unusual transactions
Scan check images for unusual vendors, possible forgeries or inconsistent signatures
Scan check images for unusual endorsements
Scan deposit slips for “cash back” deposits where the amount deposited in the bank is less than the full amount of checks
Watch for changes in employee’s financial situation — hardship could provide incentive to commit fraud; significant spending beyond their means could indicate that fraud has already taken place
Set up controls with the bank where checks over a certain dollar amount require dual signatures
In addition to these steps, it is important to create a culture of honesty and high ethical standards. In addition, communication should be open and timely to provide employees with a clear understanding of expectations regarding ethical behavior.
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January 19, 2023