Tune in as we share the story of a non-profit executive who was convicted of embezzling $1.36 million in company funds. ByrdAdatto partner, and series regular, Jay Reyero joins us to unpack this cautionary tale. We discuss the importance of compliance and share tips to prevent embezzlement in your business.
Listen to the full episode using the player below, or by visiting one of the links below. Below is the episode’s transcript which has been edited for readability. If you have any questions or would like to learn more, email us at firstname.lastname@example.org.
Intro: [00:00:00] Welcome to Legal 123s with ByrdAdatto. Legal issues simplified through real client stories and real world experiences, creating simplicity in 3, 2, 1.
Brad: Welcome back to another episode of the Legal 123s with ByrdAdatto. I’m your host Brad Adatto with my co-host Michael Byrd.
Michael: Thanks Brad. As a business and health care law firm, we meet a lot of interesting people and learn their amazing stories. As you know, this season we are mixing things up a little bit. We’re here to talk about OPP.
Brad: Alright, Michael.
Michael: Other people’s problems, Brad.
Brad: I was about to say, what is OPP? What does this mean?
Michael: Well, we’re gonna tell public stories in the news and then talk about some legal lessons that can be learned from these fascinating stories.
Brad: Perfect. Well, Michael, before we discuss today’s OPP story, I know that you just recently attended your oldest son Christopher’s wedding. Congrats and how was it?
Michael: It was amazing. Christopher and [00:01:00] Melanie were recently married and I actually got to attend, which in my family, I’m now one for two. I can’t remember if we’ve talked about this before, but my daughter got married during Covid and our family got Covid the week of the wedding. There was a news story. In fact, we could probably just put, in the show notes, a link to the local newspaper story or local news story, the video covering that. The fact that I was there made it a big win.
Brad: Yeah, it’s a big win. How many weddings do you typically attend in a given year?
Michael: You know, we don’t go to a ton, probably one at most.
Brad: Fair. In any of these weddings, have you ever been an usher or groomsman? Best man?
Michael: Yes, although it’s been a minute since I’ve served that sort of role. That’s probably going back to my twenties. Went through that whole rotation as all my buddies were getting married.
Michael: Then when they [00:02:00] got married, the ones that got married again, didn’t tend to have the same formality. They were more destination weddings.
Brad: Gotcha. Well, I think the last time I was in a wedding, Michael, I think a guy named Michael Byrd had asked me to be an Usher for his wedding. In fact, you may have met his wife, Stephanie, because she was just on our last episode last week. I don’t know if you remember him.
Michael: I heard he is pretty awesome. Yeah. Yeah. You’re really lucky.
Michael: Oh, okay. Moving on, Brad, I’m glad you asked about Christopher’s wedding and it was very caring of you, but where are you going with all this wedding talk?
Brad: Well, you and I have talked about cameo before on the show.
Michael: Yes, yes. Cameo is an online service that lets people hire celebrities to create personalized videos. Brad, what celebrity are you trying to hire and for whose [00:03:00] wedding?
Brad: Actually, it’s a fair question, but that’s not what I’m doing. I read this article recent about China. One of the new rages is to hire professional bridesmaids and groomsmen for your wedding.
Michael: You know, I don’t know if you remember this, we actually talked about something similar a few seasons ago, but I think it was Japan and it was people for social media.
Michael: Hiring out friends and spouses sometimes so that they could pose.
Brad: Yes so very similar. Well, apparently during Covid China had so many restrictions that, which I believe are still ongoing, that it’s hard for friends and family members to travel to weddings and some couples actually say that their friends aren’t up to their standard, which audience members, I totally understand that.
Michael: When I got married I could have replaced you, Brad.
Brad: Oh, no. Well, Michael, I think you both know that we have pretty low standards.
Michael: Yeah. Brad, everyone knows that we both have a low standards [00:04:00] and we couldn’t even hold it together a few weeks ago when we had our law partner, Dr. Jeff Segal, on to talk about tattoos and HIPAA breaches.
Brad: Yes. That’s all fair points. Well, for those who are thinking about becoming a professional bridesmaid, a couple important points. Number one, the bridesmaid needs to be unmarried, and you should not be taller than the bride.
Michael: Brad, at least, you know, as a groomsman, you will not be taller than the groom.
Brad: Ouch. Well, I do have some friends that are hobbits, so maybe I might be taller than them.
Michael: Or you get rejected on that.
Brad: Well, one the professional bridesmaids that was interviewed for the article said that she’d been in 40 weddings in the last two years so again, I guess she’s winning cause I certainly have not, and she usually pretends to be the bride’s best friend or classmate. She gets her travel accommodations pretty much paid for and then she gets some daily rate between $7 to $300 for just being their best friend.
Michael: Wow. I mean, at [00:05:00] that volume, that’s starting to add up, but what does this have to do with today’s show?
Brad: Well, today’s OPP story all came to light while planning a wedding. It’s not what you would expect to be, because unlike fake bridesmaids, there’s actually some fake other stuff involved in this one. Michael, before we bring on today’s guests, and I use that term loosely since he’s been on too many shows to call him a guest, I want to give a shout out to one of our newest fans of the show, Sam, from South Dakota. Hope you’re enjoying listening to today’s show on your drive to your dad’s place. Tell Frank, Sky, Michael, and Ben, hello from all of us from Dallas.
Michael: Yes. Yeah, and I will see you next year. I’m sorry to have missed you this year. So Brad, let’s officially welcome back our podcast regular and our partner Jay Reyero.
Jay: Alright, thanks guys. Love being here.
Brad: Alright, Jay, let’s just jump right into today’s OPP story. It happened right here in our [00:06:00] backyard, in the Dallas-Fort Worth area, and unfortunately, today’s story is not that uncommon. One that we all often see too many times and it’s one of opportunity and it’s about greed. Jay, who is the lead character in today’s OPP?
Jay: Yeah, so the lead in today’s story is going to be Tamara Wallace. She was the Chief Operating Officer at Donate To Impact, a for-profit organization that primarily operate thrift stores across the Dallas-Fort Worth metroplex.
Michael: Well, I would say that we’re going to be doing a feel good story if we’re talking about a non-profit, but you did use the word “was the COO,” so that kind of gives me a little pause.
Jay: Yeah, so she started with them back in August of 2012, but in 2019 because of a March 26th text message, she was actually fired.
Brad: Yeah, that sounds juicy. If we’re doing some labor law case, because generally some inappropriate picture was sent or some wrong statements were said to the wrong [00:07:00] person, but something else happened here.
Jay: Nerd Alert. Nerd Alert. Yeah. This text message was an alert to the CEO and this was all about finance and money and numbers. The text basically said, “Did you attempt a $5,000 charge on a corporate card at Weddings by Stardust?” This was related to a $5,000 deposit for a wedding planning service here in Dallas.
Michael: Well, I’m a little curious what Weddings by Stardust is, but I don’t think that was your point, so tell me more.
Jay: Yeah, so here’s the problem, the charge was actually on Mrs. Wallace’s company card and so the CEO just happened to know that she was in the wedding season, her son was getting married in November, and so this text message kicked off basically the unraveling of Miss Wallace’s entire embezzlement scheme.
Brad: Yeah, that doesn’t sound very good. So wedding leads to embezzlement, so how much money are we talking about here, Jay?
Jay: So from [00:08:00] 2015 until she was fired in 2019, we are talking $1.36 million.
Michael: Whoa. I don’t know if she had a lot of kids getting married, but Weddings by Stardust was raking it in, or I’m guessing there’s probably other places. How was she able to do this?
Jay: Yeah, so first off, we have to remember, she was the COO, so with that position, she had a lot of authority. She was given authority, used the corporate card, the debit cards for business purposes. She also had access to the bank account, so she was in a position of authority, so we gotta keep that in mind.
Brad: You did say she was a COO, so tell us, where was the chief financial officer during all this? How did they miss this?
Jay: Yeah, so if you go back to 2012, when she was first hired, the company was actually very small and so not uncommonly, not only did she have the authority of the COO, but also over time she took on the role of other things related to the finances. She essentially became the [00:09:00] CFO as well. She even kind of maneuvered herself in that role a little bit. The company did have a controller and at one point the controller asked her to provide her with all the credit card statements from all her corporate cards and debit cards. Miss. Wallace instead offered politely that she would handle the petty cash and credit cards to help ease the workload.
Michael: So generous. What were some of the details?
Jay: Alright, so like most situations that happened like this, things started pretty small. For example, when she was asked to go pick up something at Walmart, she would buy an extra item here or there for herself and in 2015 she purchased some personal items from Amazon, only totaling about a thousand dollars. Okay, well then the next year in 2016, let’s make that $4,000. In 2017, how about $18,000?
Brad: Okay. You know, a little something extra it sounds like. Just a little [00:10:00] sprinkle on top. Jay, people go to Walmart and they go to Amazon, and they do that to help save money, but we’re still a very long way from 1.3 million.
Jay: Oh, buckle up because we just got started.
Brad: Uh oh.
Jay: They start small, but as everything, they never stay that way. This is a story, again, Brad, what you said earlier, it’s a story about greed. So, 2018 is really when things just went crazy and so she ended up using company funds for a laundry list of things. So some of the examples, she spent 30,000 at Amazon that year, so a little bit of an increase. She spent $6,000 at Apple, which probably one iPhone honestly, nowadays. She spent $15,000 on pet daycare services.
Brad: Did she like have a swarm of pets?
Jay: It’s a lot of dogs.
Jay: She spent over $6,000 at Louis Vuitton. She also spent another $6,000 at a medical spa in Frisco for [00:11:00] cosmetic and aesthetic treatments. She spent over $16,000 on remodeling work for a new home that she had purchased that year. It was her second home.
Jay: Then she also spent over $17,000 for personal travel, airfare, hotel and payments towards a Disney cruise.
Michael: Well, she spent more on pet care than she did on self-care and she didn’t go light on self-care with the 6,000 at Louis Vuitton and the med spa spending.
Jay: And that’s not all. Throughout this period she was also sprinkling different charges for things, personal purchases where it was food and flowers and home security payments and she was even using the corporate card to pay off her personal credit card debts. She was paying portions of college tuitions for one of her kids. I think the worst part was quite [00:12:00] shocking, it was that she actually went to the company’s thrift stores and used the company cards to purchase items for personal use from those stores. During the hardest timeframe financially for the company, their CEO said that she was coming within $1 of the card limits.
Michael: It’s crazy, and I mean, we haven’t even really emphasized this enough, she was working for a non-profit that was to help people. It’s unbelievable.
Jay: This wasn’t even it, we’re still going, and we’re still uncovering things. Another thing she would end up doing is she would reimburse herself for personal purchases by writing checks so she would write the check to herself for cash so it was made out to her and signed by her and this was to the tune of $350,000. Finally, before she was fired in 2019, the last couple payments she had made before the wedding story, she made a $10,000 purchase at Star Power and then [00:13:00] about another $10,000 at Soda Weight Loss.
Brad: Yeah, I mean, can you blame her, honestly? I mean, think about it, she had to have this kick ass surround sound system from Star Power to entertain the house guests for the wedding. She definitely wanted to look good in her wedding dress. Obviously there was some Botox, it seems like that may have been involved and weight loss, I mean, she was just trying to prim herself up for the wedding.
Jay: That’s right and now she’s gotta pay for the wedding so what does she do? Well, she uses the card. In February she first put down a $5,000 deposit for event space here in Dallas for the wedding and then on March 26th, she put down that $5,000 deposit for the planning service and that fraud alert went off and basically stopped everything.
Michael: So, what happened when the CEO got that text?
Jay: Well, of course he approached her about it and said, Hey, I got this text, do you know anything about it? Her response was politely, oh yeah, it must have been a fraudulent charge.
Brad: Well, you know what, Jay, in her defense, I mean, she actually really wasn’t lying.
Jay: That’s true. That’s true. Regardless, of course, [00:14:00] CEO and vice president started kind of looking further into her spending knowing that that wasn’t probably truthful and they actually found that right after they had confronted her, she had gone and canceled those payments towards the Disney cruise. She had made two payments with the company funds and she had immediately gone and canceled that cruise. After all is said and done, about a week and a half later was when she was finally fired.
Brad: I mean, no Disney cruise? Mickey has gotta be really sad about this. Did they, I mean, tell us this, so have they discovered the entire million plus at this point?
Jay: Oh, no, no, no. They knew she had done it, obviously, and they weren’t convinced with her stories and she had said things like, oh, I intended to pay back and, you know, so they knew she had done it, so she was fired because they knew that. The company hired a special investigator to kind of see what the extent of it was, and the investigator turned things over to the Denton County DA. It still took the investigation two [00:15:00] years to subpoena and gather documents from over 80 different entities and bank accounts because this company had a bunch of subsidiaries and so when she was making these different purchases and spending and given her position, she was able to hide the different expenses across different accounts for different entities, so it took two years for them to kind of uncover really the extent of everything.
Brad: That’s just awful on so many different levels, so what happened next?
Jay: Yeah, so two years passed. Miss Wallace pleaded guilty to criminal charges in January of 2022. She was sent to jail for 30 days, sentenced to probation for 10 years and she can’t work for a nonprofit organization. She was also ordered to pay back $500,000 immediately and then they created annual payments each year on the anniversary of her sentencing until she repays the full thing. Then the company, kind of as a safety measure, filed a civil suit for the repayment as well.
Michael: Well, that all escalated very quickly from the, [00:16:00] you know, throw on an extra package of candy at Walmart to, you know, paying for the wedding. Let’s go into commercial and on the other side, let’s talk through how organizations should protect themselves from these kinds of issues.
Access+: Many business owners use legal counsel as a last resort rather than as a proactive tool that can further their success. Why? For most, it’s the fear of unknown legal costs. ByrdAdatto’s Access+ program makes it possible for you to get the ongoing legal assistance you need for one predictable monthly fee that gives you unlimited phone and email access to the legal team so you can receive feedback on legal concerns as they arise. Access+, a smarter, simpler way to access legal services. Find out more. Visit ByrdAdatto.com today.
Brad: Welcome back to Legal 123s with ByrdAdatto. I’m your host, Brad Adatto, still here with my co-host Michael Byrd and our series regular, because I’m not going to call him a guest, and partner, Jay Reyero. Now Michael, [00:17:00] this season’s theme is OPP and as our audience was listening to this, they probably started feeling really bad for this non-profit organization. Probably also glad that in this season it was other people’s problems, so that this was not theirs. Maybe you can kind of summarize some takeaways you already had.
Michael: Yeah. I mean, quick recap, so this is a local nonprofit and they’re very similar to a lot of small businesses in the sense that they’re probably small staffed or smaller staffed so she’s COO and she has the keys to the kingdom and is able to take some liberties, probably pretty easily with no one really watching and add on a thing here or there when she went to go shopping for the company and as she started getting away with things, she started doing more and more. The one person, the controller who [00:18:00] probably had some visibility in her activities, she was able to kind of redirect from her position of power and really kind of assume control over the finances and so then it goes from adding on charges to actually just flat out spending money on the credit card, on personal things and even reimbursing herself on personal things. If you think about it, we didn’t have any purchase that we talked about that would blow your hair back. I mean, 15,000 may have been one of the bigger purchases that we even described yet she managed to spend $1.3 million over the course of this embezzlement and so it really put this nonprofit in financial straights by the time they were able to catch her and so, I mean, I guess I would start with this, Jay, is there a place for [00:19:00] organizations to start when trying to protect against embezzlement?
Jay: Yeah. I think the first place you have to really start is kind of with your own mindset, you have to recognize that this can happen to anyone, any organization, it can happen by anyone. One of the quotes that I read from the financial crimes investigator who’s been doing this for Denton County DA for years, he said it best, he said, theft happens everywhere, it’s just to what degree? I think that’s a real good kind of mindset to have that it doesn’t matter how small you are, how closely held you are, how large you are, it can happen. So, kind of keeping that in mind and then going to the part of who does this kind of thing, and it can really be anyone, I mean, Tamara Wallace in this story, she was described by everyone, various different quotes as being very honest and very sweet, and very educated and very bright. She led a bible study at her church and people [00:20:00] talked about how she came across very religious and even behind her desk, in her office at this place, she had up on the wall, the 10 Commandments, which one of the investigators pointed out said, thou shall not steal.
Jay: But you have to recognize that it’s people that you are entrusted with things, and why do you give that trust to ‘em? Because they tend to be people that you value or you feel confident in and so keeping that mindset first is really important and then second, you have to kind of audit your business to figure out where your pitfalls are. It’s a risk assessment of where are things and holes of where things can happen, credit card statements and credit card and debit cards for the corporate holders, who’s writing checks, who has access to the bank account. Just kind of identifying where your gaps are and kind of understanding where’s my real risk? That’s the only way that you can then [00:21:00] start having a plan to say, okay, what do I do to make sure that this doesn’t happen to me?
Brad: You know, I was just thinking about that thou shall not steal part. Maybe she needed to define like an asterisk next to it, which includes fraud, embezzlement, self-pay yourself.
Jay: Including, but not limited to that.
Brad: Yeah, a long paragraph behind thou shall not steal. Maybe it’s just she wasn’t stealing, she was embezzling so totally different. For our audience members to understand, I mean, it can happen very quickly and easily. We had a very large physician group that we work with, they had a CFO, so the Chief Financial Officer there who was in charge of paying all their bills and decided he would form his own separate limit liability company. That limit liability company start sending invoices to the practice for certain consulting services. Much like the story today, started with small little payments here and there, and then over time the consulting services seemed to increase as the fees did and, [00:22:00] in a very short window time our clients’ practice had spent over $200,000, paying somebody for the services that they were already paying them for. Luckily, in this particular case, it was an outside accounting firm that was reviewing the books for one of the physician owners and just couldn’t understand what these consulting services were, and they kept digging and digging, digging, and finally it all came to light. I think, Jay, you had said this a second ago, this has to do with what are the ways you can protect yourself? That’s, in this particular case, having those accounting controls in place, having someone who’s periodically looking over your cash reports, a separate bookkeeper, separate accountant, someone who’s separately putting together all the financial duties so it’s not all in one person. Who’s in charge of paying the checks? What types of approval processes are in place? What types of checks and balances do you have literally on who writes the checks and who requests the checks and then of course the cross training. A lot of times when you read these embezzlement stories, [00:23:00] it’s one person’s in charge of everything and there’s no steps to slow it down to make sure that the right person or right entities being paid for these types of services. Obviously in this case, it kept going on, but the fraud alert, so then an outside party is what triggered it and so for our clientele, having that outside party looking into your books and checking your payroll or checking the amount that you’re paying is important and then making sure that that same person doesn’t have every single duty up and down the chain of command. The last thing, which I know other clients of ours talked about is making sure the person takes time off because if they’re taking a week or two off it’s hard for them to cover that fraud if, especially if they’re doing it via payroll or something else or having someone else do the payroll every once in a while so that all the discrepancies start popping up. Michael, what are some of your thoughts?
Michael: Yeah, I mean, kind of adding on to the checks and balances, [00:24:00] I really like the idea of having outside advisors whether it’s your accountants, we’ve had Maven on, Jessica Nun, and she serves that role for many of our clients. Someone that is on the outside is going to have some visibility to the activities that are happening on the inside, can create not just a mechanism to catch, but also a preventative effect if people understand that there’s these mechanics in place, that they’re less likely to try something.
Jay: Here’s the other thing too, I mean, we’re talking about money and that’s the easiest one. It’s probably the most common one, but I mean, it may not always be money that’s being stolen, especially, we deal a lot in the aesthetic space. There are some valuable products and consumables out there that can easily be utilized not for business purposes, but for personal purposes. Michael, I know you have a story [00:25:00] along those lines as kind of a cautionary tale.
Michael: Yeah. I mean, I’ve actually got a ton of Botox getting stolen stories. Kind of one variation of the playbook that’s the most common that we’ll see is all of a sudden they realize that the boxes of Botox, just using that example, it could be any product, are empty and there’s no checks and balances in place for the inventory and then you have a hard time backtracking, but we even had someone, another client who had someone take it to an even bigger level. They had been stealing product at prior jobs and job hopping and the problem is that product expires so they would bring their expired product up and use that on patients and then [00:26:00] take current unexpired product back home and replenish the supply. A, it affects patients and B, extremely valuable assets.
Brad: Yeah and I think what happens a lot of times if you’re suspecting that someone might be doing something like that, stealing your product, stealing equipment, or in case embezzling, it sounds a little bit counterintuitive, but just wait first. Don’t immediately confront the employer, fire them because you might be wrong. Unless obviously there’s the significant risk at play, they’re about to transfer $500,000 or whatever it is or you have a better, firmer grasp on what’s the embezzling that’s going on here. A lot of times the first thing is to contact some outside independent accountant who can help start investigating or even monitoring the situation cause you might find out that you’re in-house accountants involved [00:27:00] in some capacity. You had no idea that if you fire one person, you’re not actually stopping the fraud itself. Unless of course they flip on each other like we’ve learned within other episodes and so you want to make sure you rule out all other possibilities, you want outside help and the reason again is cause if it’s more than one player, which does happen sometime where one person finds out about the other person, they just bring him into the fraud itself so that’s eventually when you want to bring in, obviously, your outside counsel to help give you guidance and of course, law enforcement needed and the prosecutor’s office. With the time that we have left, I’m going to start with you, Jay, first and then you, Michael, go after that, but let’s have some final thoughts on this particular episode.
Jay: Yeah so I think prevention is key. You’ve Gotta understand where your risks are and you gotta mitigate those by putting the policies and protocols and safeguards in place and part of that going to your point is, what happens for an investigation? Understanding what’s my response team? What do we do? How do we do it? [00:28:00] Because if you’re going to ultimately go to the DA or try to file a lawsuit, you’re gonna have to have a lot of this information so you want to be able to have a very quick and easy response plan so that you can implement it, stop it, immediately start gathering information and so just kind of having that plan from the beginning is really key to setting yourself up to stop it early. You may not stop it completely, but at least stop it early.
Brad: Yeah, that’s a good point is having that plan in action, but it also, I think going back to having that outside person, if you don’t find that person to help you with that. Michael, your final thoughts?
Michael: Yeah. I had this happen recently. It’s an added twist, if you happen to be in health care, a medical practice is, making sure you’re compliant, you think, well, why does that have to do with embezzlement? Well, I had a call like two weeks ago where they were getting embezzled and they were running their med spa non-compliantly and so they were terrified that [00:29:00] if they turned the person in that was stealing that they were going to then turn around and blow up their model because they were running a non-compliant practice. They kind of felt frozen, so to speak, from prosecuting or going after this guy cause they felt like it would hurt the business. Other than that, if you’re planning a wedding, no matter how much you want to go out and pay for that groomsman to come be in the wedding, don’t steal from your company to pay for it.
Brad: Fair points. Really good legal advice there, Michael. Jay, thank you for joining us again.
Jay: Thank you. Thanks for having me.
Brad: Well, that’s all the time we have today. But Michael, guess what? We have one more episode left this season. Woo woot! And so next week we’re going to have another OPP story about when non-compliance will cost you your license. [00:30:00]
Outro: Thanks again for joining us today and remember, if you like this episode, please subscribe. Make sure to give us a five star rating and share with your friends. You can also sign up for the ByrdAdatto Newsletter by going to our website at ByrdAdatto.com. ByrdAdatto is providing this podcast as a public service. This podcast is for educational purposes only. This podcast does not constitute legal advice, nor does it establish an attorney, client relationship. Reference to any specific product or entity does not constitute an endorsement or recommendation by ByrdAdatto. The views expressed by guests are their own and their appearance on the program does not imply an endorsement of them or any entity they represent. Please consult with an attorney on your legal issues. [00:31:00]