Plan now to avoid the devastation of financial crimes

We remember the shock and disbelief in 1999 when Paul Pristera, the highly regarded director of transportation for the Guilderland schools, was charged with three felonies — one count each of grand larceny, scheming to defraud, and falsifying business records.

That was nearly 20 years ago but we can still feel the hurt of betrayal we heard when we spoke with those who knew and worked with Pristera.

“Lots of people are feeling the same way I am — shocked,” said Blaise Salerno, the superintendent at the time. “He was well-liked, affable, community-minded; he worked long hours,” said the superintendent of Pristera. “He gave everyone the impression of high ethical standards, both his own and that he held out for others.”

The Guilderland Police concluded that Pristera defrauded the school district by submitting false invoices to the district for payment for parts and merchandise at three local auto-supply businesses.

Asked about motivation, the sergeant investigating the case, William Ward, said, “Mr. Pristera had incurred some legal debt and was in over his head. He needed money to pay his lawyer’s bills.” Ward said that Pristera had been sued in a job-related case.

“The school district didn’t feel they had to cover for him; he felt they should have,” said Ward, adding, “Not that that makes it right.”

Two years later, in 2001, the district’s beloved athletic director, Mike Salatel, was charged with felony grand larceny for stealing gate receipts from high school games. Two girls he coached on the varsity basketball team wrote us a heartfelt letter about the family atmosphere Salatel had created, carrying the team through good times and bad. “Mike Salatel was a man who was well loved by many within the school district and community,” they wrote.

We remember, too, the shock and anger in 2007 when David Bryan, a former supervisor of Rensselaerville, was arrested for stealing from four of his town’s most central institutions — from the Rensselaerville Library, from the Trinity Church, from the Rensselaerville Historical Society, and from the Rensselaerville Historical District Association. He later pleaded guilty to felony larceny and, as part of his plea bargain, agreed to pay back the more than $300,000 he’d stolen.

Bryan was trusted and had held leadership roles in all of those organizations. Residents packed the Rensselaerville Town Hall, cramming in doorways and looking through windows to hear what investigators had to say. They applauded the investigator who first discovered a suspicious check.

Last week, our Guilderland reporter, Elizabeth Floyd Mair, wrote about three more recent embezzlement cases. In each, the shock was a constant. So was the devastation. Floyd Mair then went a step further and talked to an expert about how organizations — whether businesses, or school districts, or community organizations — can avoid embezzlement. Pamela Wickes, a certified public accountant and certified fraud examiner, described a “Fraud Triangle” — outlining three factors that have to be in place for someone to embezzle:

— Perceived pressure, which can be business-related like Pristera’s legal charges, or personal, such as a gambling addiction;

— Perceived opportunity, which is a sense no one is watching. Because Pristera, Salatel, and Bryan were all trusted, no one was checking on how they handled finances; and

— Rationalization, which may be, as with Pristera, thinking he was owed, or may be, as police indicated with Salatel, thinking he’d borrow the funds and pay them back; Salatel had falsified no records.

Employers need to recognize warning signs — like a sudden change in a worker’s circumstances such as divorce, or living beyond a given salary.

One important key to prevention is to separate accounting duties. For instance, having one employee send out invoices and another collect the money.

Superintendent Salerno, when asked about changes the Guilderland School District might make in the wake of Pristera’s admission of guilt, said, “The numbers of dollars you would have to spend are not cost effective.” He said hiring additional staff would not offset money saved.

“You’d need inventory control,” said Salerno, “and a second [employee] to sign off on receipt of goods. With a scheme like this, any system you put into place, you just have to co-opt another person, split the take another way.”

But it is less likely that two workers would be willing to steal. As Wickes said, when one person is working alone, doing everything, it’s easier to falsify books and records.

This can be tough on a small organization without many workers but there are ways to do it. Floyd Mair talked to the minister at the Helderberg Reformed Church, Lindsey DeKruif, who described how duties are divided there — the church’s treasurer keeps the books and does payroll but a financial secretary counts the offering and the board of deacons helps oversee those monies.

Although it may seem intrusive to set up such systems, we beg the many small not-for-profits that we cover week in and week out to set up such checks and balances. The consequences of not having such a system in place can be devastating.

The New York State Weatherization Directors Association, which helps poor people heat their homes efficiently, had $800,000 embezzled by Randi Smith, who handled finances from the association’s Guilderland office, and another $300,000 by her son, Dakota Smith.

The organization had to close its Guilderland office last week and lay off some of its essential workers. Regaining the association’s good name will be “about time, more than anything,” Andrew Stone, who directs the association, told Floyd Mair. “We still have to deal with the economic impact.”

Knowledge of the crime, and fear of its impact, have reached the federal level in Washington, Stone said at Randi Smith’s sentencing. If the incident is raised during federal budgeting, it could have enormous negative impact on the national program, he said.

Smith’s actions have “permanently tarnished” the association’s “impeccable reputation,” Stone said.

We urge organizations to plan for the worst — put safeguards in place now so that you won’t be hurt.

The same directive applies to avoiding fraud. Richard Sherwood, once a respected judge in Guilderland, has pleaded guilty to bilking a wealthy elderly couple and the wife’s two sisters out of millions of dollars.

Sherwood, scheduled to be sentenced yesterday in Albany County Court, had his sentencing postponed for the third time.

Elizabeth Loewy, who had served as chief of the Elder Abuse Unit in the Manhattan District Attorney’s Office, spoke earlier this year at a forum to educate police on elder financial abuse.

“We all want to age with our dignity intact,” said Loewy. She called cases of elder financial exploitation “truly sad” and said that most older people who have been defrauded die soon afterwards.

She gave examples such as someone cashing an elderly person’s checks without permission, misusing or stealing an old person’s money or possessions, coercing or deceiving an older person into signing a document like a will, or improperly using guardianship or power of attorney.

According to the American Association of Retired Persons, close to 80 percent of the wealth in the United States is held by seniors, Loewy said, and one in nine has Alzheimer’s disease; one in three die with some form of dementia. Loewy termed this “a perfect storm.”

Seniors are targeted because exploiters follow the money. In 2009, Loewy said, the net worth of households with residents 65 and older was $18 trillion.

A rigorous study in New York State, she said, found that only one in 44 cases of elder financial abuse are ever reported. That study, she said, didn’t even include people with dementia who were unable to be surveyed. Calling it a “hidden crime,” Loewy said that, on average, victims lose $120,300 each.

So many cases go unreported, she said, because the victim is embarrassed to have been duped. Another reason is because it is often a family member that is taking advantage of the elderly person; parents don’t want to report their kids, she said.

As Wickes did with embezzlement, Loewy went over a series of “red flags” or warning signs that can alert police or family members or friends to elder abuse. One is changes in financial activity with, for example, a new person with power of attorney or an unexpected change of beneficiary, or closing accounts or making early withdrawals without regard to penalties.

Police were also advised to focus on a senior’s vulnerability with an eye to his or her companions, to look for changes in clothing, demeanor, or conversation; or to pay attention if there is a new caregiver or “best friend”; and to take note if the senior appears frightened or fearful or submissive with a companion.

If you’re hiring a financial planner, whether you’re elderly or young, look for a fiduciary, someone who has pledged to always act in the client’s best interest. Go with a certified financial planner, and check the National Association of Personal Financial Advisors — planners whose only revenues come only from their clients’ fees; NAPFA planners don’t accept commissions.

Ask a planner you are considering if he or she has been convicted of a crime or investigated by a regulatory body or investment-industry group. Get references from current clients. Then check out both the answers and the references. Do an online search. Discipline records for certified financial planners are available at the CFP Board website.

We wish we never had to write another headline about fraud or embezzlement. We wish we never had to write another story about an organization that is in shock over a betrayal, or about an elderly person who has been scammed.

We’d rather people heeded precautions. We urge our readers — as individuals and as members of organizations — to pay attention to the red flags we’ve outlined here and to take actions now to protect your organization, whether church or library, school or company, and to protect the people you love from these devastating financial crimes.

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