Utah company rallies after CFO's theft comes to light
As turnaround stories go, this one is unusual.
Pool Cover Specialists you can guess what this West Jordan company makes set a sales record last year. But it did so after climbing out of a hole that someone else dug one so deep that it could have killed the business.
"We broke a 29-year company record in 2012, even after we caught our CFO (chief financial officer) with her hand in the proverbial cookie jar," said Bruce Grogg, Pool Cover's CEO.
Last week, Penny Thurman pleaded guilty in 3rd District Court to one charge of theft by deception and a second charge of unlawful use of a credit card both second-degree felonies. She admitted stealing $145,000 over a period of more than two years. Gregg said the amount may be a lot more, as much as $750,000 to $1 million.
"That was all we were able to prove," he said.
The thefts began just four weeks after Thurman was hired in 2009 and continued until March 2012. Grogg said Thurman had complete control over the accounting department. She misused company credit cards, set up double payrolls and paid vendors who didn't exist.
"She had everybody fooled, including our auditors. We trusted her 100 percent," Grogg said.
The company was in deep trouble after the thefts were uncovered. Just as the swimming pool season was starting, Grogg discovered Thurman hadn't been paying the company's bills. Some suppliers hadn't been paid in a year. The company faced the prospect of not being able to fill orders for its pool covers.
"It puts you in a position where you have no cash, our credit lines were tapped [out], there was no cash in the bank and we had borrowed all we could borrow. The season was starting, and we didn't have raw materials to make the covers," Grogg said.
He went to his vendors and told them what Thurman had done. Gregg promised to pay his bills before the end of the year and asked if they would fill his orders so he could stay in business. Most said they would stick by the company.
At the same time, he turned to his sales staff and asked the team to get on the phone and drum up as much business as possible. When 2012 ended, Pool Cover sales were the best in three decades, and every one of the company's suppliers was paid.
"We're not 100 percent out of the woods, but as of 10 minutes ago, [year-to-date 2013] sales are up 31 percent," he said.
The episode was a painful learning experience. Grogg implemented safeguards aimed at preventing a repeat. Payments that used to come directly to the chief financial officer now must be checked in by another department. Accounts payable and accounts receivable are handled separately. The accounting office no longer deals directly with suppliers.
"Even though this [theft] happened, I didn't allow the psychological damage to get very far, because we had to stay positive. We were in a deep hole that we had to get out of," Grogg said.
In pleading guilty to the charges, Thurman agreed to repay Pool Cover Specialists within five years and complete 250 hours of community service. She will be on probation for five years.
Five ways your business can prevent fraud losses
Organizations lose 5 percent of their annual revenue to fraud, according to a survey of Certified Fraud Examiners. Here are steps to take to identify and manage fraud losses:
Be proactive • Establish and maintain internal controls. Adopt a code of ethics for management and employees.
Establish hiring procedures • Regardless of size, companies should conduct background investigations. Check educational, credit and employment history, as well as references.
Conduct regular audits • High-risk areas, such as financial or inventory departments, should get routine examinations, as well as surprise audits. A good starting point in identifying fraud risks is the Fraud Prevention Check-up at http://www.acfe.com/fraud-prevention-checkup.aspx.
Train employees in prevention • Are employees aware of procedures for reporting suspicious activity by customers or co-workers? Do workers know the warning signs of fraud?
Call in an expert • For most firms, fraud examination is not a core business component, so when fraud is suspected or discovered, consider enlisting a Certified Fraud Examiner (http://www.acfe.com/).
Source: Association of Certified Fraud Examiners
U.S. Small Business Administration (http://1.usa.gov/YJLdFb)
Service Corps of Retired Executives Association (http://bit.ly/163Fu4A)
National Federation of Independent Business (http://bit.ly/Y8W63y)