Business Fraud Case Study: How to Detect & Prevent Fraud

On June 25, 2025, Elizabeth Gutfahr, former Santa Cruz County Treasurer, was sentenced to 10 years in prison for embezzling and laundering approximately $38.7 million of public funds. Ms. Gutfahr, who served as the Santa Cruz County Treasurer from 2012 through 2024, began embezzling funds from the county in 2013 and continued to do so through 2024. She abruptly resigned during her third term as treasurer after the county’s bank flagged the account for suspicious activity.

The Association of Certified Fraud Examiners estimates that organizations lose 5 percent of their revenue to fraud each year, which translates to more than $5 trillion lost to fraud globally. Fraud is something every business and consumer is affected by, and the Santa Cruz County case can tell us a great deal about why fraud occurs, how it is carried out, how we can spot it, and what we can do to prevent it.

Fraud is any activity that relies on deception to achieve a gain. It becomes a crime when someone lies with intent to deprive a person or organization of their money or property.

Why do people commit fraud?

The Fraud Triangle is a widely accepted explanation for why individuals decide to commit fraud. When all three components of the triangle are present, a person is highly likely to pursue fraudulent activities. The first element involves some kind of perceived pressure, the second, perceived opportunity, and in the third, the fraudster finds a way to rationalize their actions as being consistent with their personal values. Pressure can include financial struggles or greed. Opportunity arises when there are weak internal controls and inadequate oversight of the target’s accounting activities. Rationalization allows fraudsters to justify their actions internally. They may believe they deserve the money for their hard work and low pay, or they may believe that they are just borrowing money that they will pay back.

Perceived pressure

What was the pressure in the Santa Cruz County case? Elizabeth Gutfahr stated in a signed plea agreement that she intended to defraud the county and that she was aware that the funds she stole should have been going to schools and fire districts. Ms. Gutfahr used the funds to purchase real estate, pay over $6 million to renovate her ranches, purchase at least twenty vehicles, and pay for personal expenses for herself and her family. Ms. Gutfahr did not say what pressure led her to commit fraud, but her lavish purchases indicate some level of greed.

Perceived opportunity

Ms. Gutfahr’s job consisted of collecting property taxes and managing public funds. Her position of trust and insufficient oversight presented an opportunity for her to steal millions of dollars of public funds.

Rationalization

Rationalization is not about plotting. It is about a person preserving their identity as a “good person” despite wrongdoing. Rationalization provides a cushion, an excuse, and softens the mental impact of fraudulent actions. We don’t know how Ms. Gutfahr justified her theft of millions of dollars to herself; we only know that she was able to somehow justify the theft of $37.8 million.

How is fraud carried out?

Ms. Gutfahr perceived an opportunity and then created a system to defraud the county. As treasurer, she opened bank accounts with fake business names that sounded like legitimate business partners of the county. Additionally, she falsified county reports, fabricated bank statements, and bypassed multiple signer requirements by sharing passwords with the deputy chief treasurer. Her careful naming of accounts and the absence of careful review of her work allowed her to continue these activities undetected. Ultimately, Gutfahr was able to make 187 wire transfers into her own accounts over the course of her employment as county treasurer.

How can we recognize fraud?

Strong and effective internal controls are crucial to detecting (and deterring) fraud. This includes oversight by someone who is not in the day-to-day functions of the business, who knows what they are looking for and how to ask the right questions. Employees who notice irregularities should have a safe way to express concern, even if such concerns involve the actions of a superior.

The Santa Cruz County office had internal controls in place that required a two-step approval process for wire transfers. However, the treasurer bypassed this by requesting the password and multifactor authentication token from the chief deputy treasurer (her subordinate). She told her subordinate that she was transferring money from the county’s savings account to a better investment account. The chief deputy treasurer did not question the treasurer further or request investment statements because the treasurer was her boss.

Ms. Gutfahr also concealed fraudulent transfers by not recording them in the county’s accounting records, and falsified bank and investment statements. The county board of supervisors had the responsibility of oversight of the treasurer and should have been performing monthly reconciliations of the accounting reports with the bank statements. It was determined after the fact that the oversight board did not review monthly cash reconciliations.

A review of cash reconciliations would likely have led to questions about frequent or unauthorized transfers. Had these reviews been occurring, it is possible that they would have noticed the wire transfers into Ms. Gutfahr’s fake “business” accounts. At the very least, reviews could have shown that the bank statements did not agree to the accounting records.

The best way to recognize fraud is to have strong internal controls and a culture where others take note of when there are departures from the controls.

What can we do to prevent fraud?

Counties need treasurers. Businesses need accountants and payroll clerks. If a county treasurer can get away with fraud for so long, how can I prevent this from happening to me and my business?

The best way to prevent business fraud involves implementing strong internal controls like segregating duties and dual approvals and then providing oversight designed to detect departures from the controls. Employees should be informed to never share their passwords or tokens and be empowered to report activity they see as problematic.

There were red flags in this case that we can learn from: the request to the chief deputy treasurer for her password and multifactor authentication token; the tens of millions of dollars spent on properties, homes, cars, and cattle ranches by one who had an annual salary of $63,000; and bank balances not agreeing to the accounting records. Lack of oversight allowed the fraud to continue without detection for 11 years.

Do you have questions about detecting and preventing fraud in your business? Would you like guidance in designing or implementing strong internal controls? The assurance department at R&A can help you assess your company’s system of internal controls and help you determine the effectiveness of these controls. Please reach out to us. We would love to answer your questions and help you protect your company from fraud.