Gambling expansion could raise crime risk at businesses with problem gamblers

Moves toward full-scale casino gambling in Rhode Island and Massachusetts could mean an increased risk that the region’s small businesses will fall victim to embezzlement schemes.
That’s the conclusion of two Providence College accounting professors who have studied fraud cases involving problem gamblers in southeastern Connecticut in the years since Foxwoods Resort Casino and Mohegan Sun opened.
With more casino venues, Patrick Kelly and Carol Hartley predict more thefts by employees with gambling addictions who may be desperate to finance their habit.
It comes down to accessibility, the professors say, citing previous studies that indicate cases of problem gamblers double within a 50-mile radius of a casino.
“Before, you had to fly to Las Vegas, so you were not going to fall into the trap,” Hartley said. “Now there are more casinos around, and it’s very easy for people to get sucked in. I firmly believe that there’s going to be a lot more of this out there, and small and medium-sized businesses are going to get hit.”
In Rhode Island, Gov. Donald L. Carcieri recently vetoed legislation allowing voters to decide on full-scale gambling at the state’s two slot parlors.
Neighboring Massachusetts is considering licensing two or three casinos.
Hartley and Kelly see the potential for expanded gambling and are warning businesses to take steps “to prevent employees from going so far down the path [of embezzlement] that they ruin their lives,” Kelly said.
The professors acknowledge that determining just how widespread the problem is can be difficult to judge right now. Many businesses don’t report the crimes because of the embarrassment and as leverage to recover the money from the thief.
But Hartley said prosecutors and the state police in the region have noticed a change. “They say the frauds occur for things like gambling addiction, where in the past it used to be things like cocaine addition,” she said. The professors’ research, published in the Management Research Review two months ago, focused on 16 fraud cases in southeastern Connecticut, and they identified the similarities.
The embezzlers with gambling problems were often trusted employees given free rein to do the bookkeeping as well as handle money, and the victim businesses were most often small or medium-sized companies without monitoring systems.
The cases highlighted by Kelly and Hartley included a 61-year-old tax collector in Ledyard, Conn., the community surrounding Foxwoods, who stole $300,000 from the town over three years before she was caught; a chief financial officer for an auto dealer who took $100,000; and a paralegal/bookkeeper who pilfered $687,000. Each spent the money at the casinos.
While temptation already exists with not only Foxwoods and Mohegan Sun – the world’s largest casinos – but Rhode Island slot parlors Twin River and Newport Grand, the professors said expanded gaming in the Ocean State and Massachusetts will only strengthen what’s known as the “fraud triangle,” which consists of opportunity, pressure and rationalization.
These embezzlers are different from other thieves, Kelly said. They tend to feel shame while stealing, genuinely like the business owners and rationalize that they will one day pay it back.
“They are trust violators,” Hartley said. “It’s not that they’re bad people. It’s that they find themselves in unusual pressure circumstances, and it causes them to do something they wouldn’t ordinarily do.”
At the same time, the perpetrator usually knows the business’ accounting system better than anyone else and is able to hide the misdeed, even from outside auditors. In fact, the professors say, the crime is usually discovered because of a tip from a co-worker or by accident.
In the case of the Ledyard tax collector, she had a severe heart attack, and then rushed back to work when she was released from the hospital. When she refused to go home to rest, town officials launched an investigation.
“Everyone thinks the external auditors will find [the fraud], but that’s not typically how it’s found,” Hartley said. “It can be really hard to find unless you do extensive procedures.”
Kelly and Hartley recommend small and medium-sized businesses should hire a certified public accounting firm to perform extra auditing checks during the fiscal year. Business owners should take control of credit card and bank statements, such as having them sent to a separate post office box.
“Business owners are not aware of the depth of the problem, or the steps they need to be taking to prevent themselves from having this problem,” Hartley said.
The professors said managers should be aware of behaviors from employees such as conversations about trips to casinos, treating everyone to lunch, furtive phone calls and absences; preoccupation over auditor visits and staying late before period-end reports.
Hartley said she is personally not opposed to casino gambling, characterizing it as an “entertaining way to pay taxes.”
Kelly, who lives in Ledyard, said he has mixed feelings. The casinos provided employment for many who lost their jobs with defense contractors in the 1990s, but he was troubled by the gambling problem he found in the course of his research.
“My concern is, as you expand casino gambling to Massachusetts and potentially Rhode Island, you run the risk of having more instances of [fraud] like this, and I think every one of them is tragic,” he said. •

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