The San Jose owner of a management company was sentenced last week to six months in county jail for embezzling funds from over a dozen small and medium-sized hotels, including many that are family-owned.
Henry Flynn, 57, owner and CEO of Kubo, provided management services to hotels throughout California, including in Lake Tahoe and the Bay Area pleaded guilty to grand theft in November 2022, and was sentenced in Santa Clara Dec. 20 by Superior Court Judge Hector Ramon.
Flynn was accused of pocketing tens of thousands in fraudulently obtained insurance funds.
He had previously been convicted in 2008 of grand theft for embezzling from his then-employer, Vasona Management.
In addition to his sentence, Flynn paid back over $195,000 in restitution to the victims. After his six months in jail, he will be placed on probation for three years, during which he cannot own or operate a business that handles the bookkeeping, accounting, or financial matters of others and during which he must notify his clients of his conviction, according to prosecutors.
“Trust, but verify,” District Attorney Jeff Rosen said in a statement. “We have a steady stream of small business victims duped by predatory criminals who may have been discouraged or caught by a more robust system of financial checks and balances.”
Rosen said Flynn employed personnel to manage the hotels and obtained workers’ compensation insurance for those employees. Records from 2015-2018 showed that for those policy years, Kubo over-estimated the insurance needs of some clients, resulting in premium over-payments of tens of thousands of dollars per year. However, when the insurance providers refunded the over-payments, Flynn pocketed the refund checks and put some of them into his personal accounts.
In 2018, a client reported concerns about potential criminal conduct by Flynn and Kubo to the District Attorney’s Office. During its investigation, the DA’s Bureau of Investigation obtained records from Kubo’s workers’ compensation insurance carriers, which ultimately revealed the theft to which Flynn pleaded guilty.
The DA’s Office suggests the following steps that small business owners can take to prevent embezzlement:
- Set up dual authority so oversight is built into the handling of finances (i.e., the employee, consultant or management service handling the accounting is not the same person or entity in charge of writing checks).
- Require dual signatures on checks over a set amount, so that an employee, consultant, or management service does not have unilateral spending authority.
- Run background checks for and vet people who handle finances, including any consultants or management services.
- Hire a CPA firm to do a sampling of transactions on a regular interval.
