Reno. Nev. — Dr. Davyd Pelsue, 39, learned the hard way that small businesses with a "family" atmosphere are, unfortunately, the most susceptible to employee theft.
Five years after purchasing Veterinary Specialists in Reno, he discovered — through a stroke of luck — that his long-time practice manager and family friend had funneled more than $200,000 from his business. The practice manager, Michele Davenport, has since been convicted. But for Pelsue, the ordeal has been a difficult lesson.
"She indeed was a great manager," he recalls. "But the bottom line is, as we grew, I needed to spend more time as a doctor growing the practice. I wanted to spend time as a doctor, not a bean counter."
So Pelsue put all of his business affairs, and his trust, in 45-year-old Davenport, who joined the practice just 10 months before he bought it. Over time, he says he trusted Davenport so much that he made her the emergency contact for his children, and their two families spent a lot of time together outside of work.
"Violation of trust is the thing that sits and puts a big hole in your heart," he says, adding that this hurt more than the dollars lost.
As the business grew, Pelsue says gross revenue was increasing, but net profits never went up. So he worked harder and put in more hours away from his family to help his business succeed. Then, in September 2008, he got the call that tipped him off to what had been going on for at least four years.
Pelsue's credit card company's fraud department called to alert him to some unusual purchasing patterns, so he went online to review his statements. For years, he had left all the handling of his business finances to Davenport. As it turned out, she had pasted vendor names over many of the invoices she showed Pelsue so they appeared legitimate. The money trail became evident when he went back through years of statements. He could only go back as far as January 2004, and discovered that the drawers of financial records Davenport supposedly had been keeping at the practice were filled with scrap paper. In the end, he reported a loss of about $213,000 to police.
Fraudulent charges made to Pelsue's card included a trip to Cabo and a Eurorail pass, home improvement purchases, food, clothing and liquor.
Pelsue fired Davenport in September 2008 after the thefts came to light, and she was arrested in April 2009. She entered a guilty plea on Dec. 22, 2009, and was sentenced on May 11 to 96 months in prison. Just before sentencing, Davenport's attorney asked Pelsue to make a deal — to forgo charges if she agreed to repay the money.
"But I didn't even get an apology until she made her statement on the day of sentencing," Pelsue says. "I had an offer that was too little too late."
Davenport will be eligible for parole after 22 months of serving her sentence, and Pelsue now is in the process of filing a civil suit against her to try and recover some of what he lost.
"Will I ever see all of it? Reality is, probably not," he says.
According the National White Collar Crime Center, employee theft costs businesses $20 billion to $90 billion per year. Small businesses fall the hardest due to their "family" atmosphere, trust of employees and lack of theft-prevention controls. A study by the Association of Certified Fraud Examiners (ACFE) found that small businesses lost about $127,000 in 2002 compared to $97,000 lost by larger companies — and about 20 percent of all business failures can be linked to embezzlement. Median loss from fraud in the United States is about $105,000, and theft usually continues for about 18 months before being detected, the group says.
Like in Davenport's case, most embezzlers (about 80 percent) hold positions in upper management, accounting and purchasing. In almost half of all employee theft cases, the individuals were living beyond their means, ACFE reports, but the group says background checks may do little to help prevent theft in the workplace. More than 85 percent of fraud cases in the ACFE study found that the individuals stealing from their employers had never before been convicted or charged for fraud.
For Pelsue, hiring a new practice manager didn't cause him too much anxiety — he promoted from within. But he certainly changed the job description. He realized that, as much as he wants to focus his efforts on being a DVM, his choice to be a practice owner means he can't hand over so much control to employees.
"I'm probably somebody who gives people the benefit of the doubt in any situation. This was a terrible violation of trust, but it isn't indicative of everybody," he says. "I think it just emphasizes the need for sound business practices. Veterinarians as a whole just want to be doctors, but you have to keep track of your business."