Workplace Fraud Hits Small Businesses

Diana Wright was floored when she saw her former comptroller and CFO Jeri Qedan’s mugshot on the Washington County sheriff’s website in June 2009.

As the owner and CEO of The Right Solutions, a Tontitown-based healthcare staffing firm, Wright checks the website daily as part of the background screening required of the company.But she never expected to see a photo of the woman she had once entrusted with the bulk of her company’s finances.

Qedan had been arrested the day before on charges of stealing more than $74,000 from her employer, Complete Inc. of Springdale.

Workplace fraud occurs more frequently than most business owners would like to think. The typical organization loses 5 percent of its annual revenue to fraud, according to a 2010 report by the Association of Certified Fraud Examiners.

And while big-ticket fraud cases like Enron and Bernie Madoff grab headlines, small businesses are the most vulnerable, the association has found. That’s because they often lack anti-fraud controls used by larger companies, such as internal audits and management review.

After Wright’s initial shock on learning of Qedan’s arrest, she thought back on events during Qedan’s tenure at TRS from 2002-2006. The company did not show the revenue growth it should have during that time, and an independent auditor Wright hired knew something was wrong with the financial records but couldn’t put his finger on it.

When Wright saw Qedan’s mugshot, she said, “Then all the pieces went into place.”

The next day, Wright was knocking on the door of Complete Inc.’s owners, Loy and Vicki Hoskins. With their help, she eventually uncovered a labyrinthine trail of forged checks, payroll wired into Qedan’s account and a host of other suspicious activities.

In September 2009, Qedan pleaded guilty in Washington County Circuit Court to theft of property from Complete Inc., and served nine months of a 20-year sentence. On May 12, she pleaded guilty to stealing $60,000 from TRS. Sentenced to 10 years in prison with 30 years suspended, Qedan is due to report to the Washington County Jail on June 28.

Qedan didn’t respond to a request for comment made through her attorney, David Hogue.

Prosecuting attorney Chreea (pronounced CREE-ya) Stanimirovic said Qedan must repay the money she stole from TRS, at a rate of $400 a month, once she’s out of prison.

Wright said she contacted the FBI and IRS when she discovered the thefts. Stanimirovic confirmed there was an investigation, but said the amount stolen must top $1 million to take the case to the federal level.

“They investigated for approximately one year and couldn’t prove a level that met their minimum requirement,” she said.

Wright and the Hoskinses continue to find thefts among Qedan’s records, so they still don’t have a final tally. Wright figures it’s upward of $823,000 for her company, and the Hoskinses estimate around $250,000 for their small electronics firm.

All three are concerned Qedan may have stolen from others she’s worked for.

“This is not her first rodeo,” Loy Hoskins said.

Devoted Mother
A Fayetteville native whose maiden name was Jeri Denise Steinberg, Qedan was born April 20, 1963, according to a background check run by TRS. However, the report also showed birthdates of April 1, 1963, and October 1962.

Bashar Abdulla Qedan said he married Jeri in 1982. 

Her job application with TRS shows she attended the University of Arkansas from 1993-2000. She has bachelor’s and master’s degrees in Middle Eastern studies and speaks fluent Arabic, Wright said.

The Qedans had four daughters, but the marriage ended (in 2001, according to her ex-husband) and Jeri Qedan raised the girls on her own. She worked as an office manager for a now-defunct company in the early 1990s. At one point she held two jobs while in college – doing payroll for Café Santa Fe from 1995-2000 and working as a financial aid officer for the UA from 1997-2002.

In March 2002, a few months before Wright hired her at TRS, Qedan married Dave Freshwater. After they divorced in April 2008, she changed her last name back to Qedan.

Wright described Qedan as extremely bright and a devoted mother who gave her daughters the best of everything. However, Wright said Qedan’s lifestyle was modest; she and three daughters lived for a time in a two-bedroom rented duplex.

Qedan’s one personal extravagance, Wright said, was eating out every night, treating her daughters and friends to dinner.

A “theft registry” found among Qedan’s archived documents on TRS’ server showed total deposits to her checking account of $390,661, although because no dates were listed, a timeline can’t be established. The printed document is about an inch thick.

Typical expenditure items included restaurants, beauty salon and spa services, clothing stores, a Greenland basketball team Qedan incorporated – and regular tithes to her Fayetteville church.

Her former employers’ records also show thousands of dollars were wired into a bank account in Jamaica, where nonresidents aren’t taxed on earned interest.

Qedan was on a cruise to Jamaica when Loy and Vicki Hoskins discovered she’d been stealing from them.

 

Trail of Deceit

For months Loy Hoskins had tried to figure out why the company wasn’t doing better, even working out a spreadsheet showing it should be profitable.

He thought the problem might be the accounting software, so in early May 2009, he bought a new system. He said Qedan became angry when he suggested purging old data when the new software was installed.

“I was very puzzled by this and had a strong feeling I must follow through,” he said.

On the evening of May 29, 2009, the accounting system went live. Within 20 minutes, Hoskins said, problems with the accounts started showing up. He and Vicki stayed up until 2 a.m. “in almost disbelief” as significant discrepancies came to light.

By the next day, they realized they had a widespread accounting nightmare on their hands, with forged checks and other fraud discovered in multiples.

On June 5, Loy Hoskins said, they took their findings to the Springdale police.

Qedan was arrested at work three days later.

Wright credits the Hoskinses with showing her how Qedan stole from TRS.

For instance, Qedan wired money with the nurse payroll in another employee’s name so Wright’s records looked normal, but the money was routed into Qedan’s account. Qedan would later change the routing number to that of the employee to cover her tracks.

Qedan forged checks, cashed refund checks and kept two sets of books, Wright said. When employees quit or went on unpaid leave, Qedan continued writing them checks – with the money going into her account.                   

“When she wanted to hide something, she just put it in somebody else’s name. And then that person got fired for the incident,” Wright said.

“And so I lost 20 people who either quit before they got fired or they got fired because of stuff that she pulled.”

 

Fraud Watchdogs

The ACFE identifies three types of workplace fraud:

• Asset misappropriations, in which the perpetrator steals or misuses an organization’s resources. This includes skimming cash receipts, falsifying expense reports and forging company checks.
• Corruption schemes, in which the employee uses his or her influence in business transactions in a way that violates a duty to the employer to obtain a benefit for the employee or someone else. Examples include bribery, extortion and conflict of interest.
• Financial statement fraud, which involves the intentional misstatement or omission of material information in the company’s financial reports.

A fraud prevention checklist, designed to help businesses test the effectiveness of their fraud prevention measures, is on page 80 of the ACFE’s “2010 Report to the Nations on Occupational Fraud and Abuse.” The report can be downloaded from the association’s website, www.acfe.com.

Jerry Spratt, president of the ACFE’s Arkansas chapter, said the best way to prevent workplace fraud is to segregate important accounting duties, which can be hard to do in a small firm.

“When you have one person doing all the bookkeeping, payroll, etc., it’s important for someone else – the owner or CEO – to assume the responsibility of independent oversight,” he said. “That means looking over the shoulder, periodically, of what’s being deposited, posted to accounts receivable, etc.”

Spratt said “serial fraudsters” such as Qedan are not the norm. Most people caught stealing from an employer have never done so before, he said.

He described a “fraud triangle” of factors common in occupational fraud: opportunity; rationalization, such as feeling overworked and underpaid; and incentive, such as financial hardship or an extravagant lifestyle.

Spratt, who retired from the Arkansas Division of Legislative Audit and is now president of Spratt Financial Forensics Inc. in Little Rock, said a fraudster in a small company is typically a known, trusted employee who has little oversight – as was the case with Qedan.

“We have a tendency in this country to trust and not verify,” he said. “We need to trust and verify.”

Collateral Damage
On Easter Sunday, Qedan posted this quote, attributed to Robert Flatt, on her Facebook page, which has since been removed: “The resurrection gives my life meaning and direction and the opportunity to start over no matter what my circumstances.”
And she will have that opportunity in about 10 years, likely minus time off for good behavior.

But for Wright, the Hoskinses and countless others directly or indirectly victimized by Qedan, recovery will be a long time coming.

Wright, whom Arkansas Business named Executive of the Year for 2008, blames herself for not being “bright enough” to have caught on to what Qedan was doing at TRS. She chokes up when describing what her onsite staff of about 75 went through, and how the hundreds of nurses she places around the country were cheated out of money due them or paid taxes on “income” that actually went to Qedan.

“I feel like there’s people whose careers have been devastated, they’ve been terminated for stuff that they didn’t do, because she stood as a witness against them,” Wright said.

Loy Hoskins said Qedan nearly drove his business of 12-15 employees into bankruptcy, and it is still struggling.

“I don’t know that we’ll ever fully recover,” he said.

 The business owners have made some changes to safeguard themselves. For one, they now use accounting software with an audit trail feature that can’t be turned off.

One of the first things Qedan did at both companies was situate her computer monitor so passers-by couldn’t see the screen. She also brought her personal laptop computer to work each day. Her former bosses now realize those seemingly insignificant acts were red flags.

Vicki Hoskins recommends either not giving employees keys to the building or limiting their access before and after hours.

Wright stresses reviewing bank statements as well as the financial reports. She said Qedan’s financial records always balanced perfectly, but the bank statements “were a complete mess,” with lots of voided checks and checks out of sequence.

 “Someone would have a hard time stealing from me now,” Wright said.