John Hickey, former controller, and Director of Quality Assurance for a family-owned business in Armonk, New York, pled guilty to one count of wire fraud.
Hickey embezzled more than $3.4 million from the family business by creating false invoices, forging signatures, and altering checks. Hickey used the embezzled funds to gamble on sports, attend concerts and sporting events, improve his home, and take vacations.
The maximum potential sentence for Hickey is 20 years in prison. The matter is being managed by the U.S. Attorney's Office for the Southern District of New York. https://patch.com/new-york/chappaqua/executive-embezzled-3-4m-family-owned-business-westchester (Oct. 11, 2024).
Commentary
An often-cited reason for the value of family businesses is you can trust your family members. The above matter highlights that family-owned businesses can have a fidelity risk, even from family relations.
According to the cited source:
…Hickey was a member of the family that owned the group of victim corporations that manufactured flame retardant fabrics, and held minority ownership interest in some of the corporations.
Hickey began to work at the victim corporations while he was in college and became the director of quality assurance in approximately 2012. He also served as the controller of some of the victim corporations.
From February 2018 to November 2023, Hickey embezzled $3,461,292.69 from the victim corporations. His scheme involved creating false invoices that appeared to be from entities with which the victim corporations did business. Hickey then forged signatures supposedly approving payment of those invoices and caused the victims' accounting system to print checks payable to him in the amount of the invoices. When a check was printed, he changed the payee on the check to match the name on the corresponding false invoice, and used a rubber signature stamp to sign the checks.
A scheme like Hickey's only works if there is little to no financial oversight. Hickey controlled almost all the account payable processes, including invoice receipt; signature sign-off, check printing, and related software.
Hickey also used signature stamps to commit his fraud. It is a best practice not to use signature stamps, but to require signatures from more than one person, especially for large amounts. With each signature, your organization has a chance to uncover fraud - either by questioning the amount, the work performed, or to whom the check is payable.
The final takeaway is that all organizations, including small family businesses, must have the oversight in place to prevent fraud. Trust is a virtue, but trust with verification is a best practice.
