Donnis Mizelle was a pillar of the local community in Avon, IN. As CEO of Hendricks Power, Donnis was in a high-profile position and was well known throughout the community, serving on several local boards and committees.
In August the illusion came to an end. Mizelle was convicted of embezzling over $500,000 from the company over a six-year period. He now faces up to 20 years imprisonment for his crimes.
Although covered by insurance, Hendricks has faced a huge cost in terms of resources devoted to the case and a severe loss of credibility in the community. The most damaging factor for Hendricks was how often Mizelle was able to defraud their system, submitting repeated requests for reimbursement for fraudulent business expenses between 2009 and 2015.
The fact it took six years to discover the T&E fraud is a major concern for Hendricks audit systems, yet their problem is one that many companies across the U.S. are currently facing without realizing it.
Employee fraud is estimated to cost U.S businesses $20B to $50B every year. Sadly, many small companies have little to no procedures in place to find fraud within their organization, and the statistics for larger corporations are even more sobering. A 2013 study by Navigant found that less than 40% of Nasdaq companies with sales between $75M – $250M have an internal audit function. For those relying on external audits there is little chance of fraud being discovered. In 2014 the Association of Certified Fraud Examiners (ACFE) found only 3% of reported frauds were uncovered by external audits.
Fortunately, new technology developments are making it easier to monitor expenses quickly, easily and comprehensively. For example, AppZen enables all travel and entertainment expense claims to be cross-checked in real-time against hundreds of data sources to flag the high risk expenses that need to be reviewed by auditors. Claims, such as Mizelle’s purchase of a bracelet, which he submitted as a business expense, would have been immediately flagged by AppZen, with the system recognizing the jewelry store as not being a normal provider of travel and entertainment expenditures.
Had Hendricks been using a system like AppZen it would have been very difficult for Mizelle’s repeated T&E fraud to get through the system, including his submission of a Euro rail pass for a family European holiday, which he had claimed as a $1250 sponsorship of a business-related dinner event.
The 55-year-old Mizelle faces most the rest of his life in jail. For Hendricks the repercussions will also last a long time, including questions about their responsibility to shareholders and ability to meet standards of compliance. Many will ask how someone could have gotten away with so much fraud for so long. The concern for Hendricks is that it took them six years to find the problem despite having internal audit procedures in place. Sadly audits are little more than random checks that hope to detect a pattern of behavior.
With today’s AI technology able to audit 100% of expenses in real-time, there’s no reason to continue to rely on threshold-based and random check audit processes to protect your business.