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Spokane, Washington  Est. May 19, 1883

Spokane developer Harlan Douglass accuses former ‘No. 1 trusted employee’ of fraud, embezzlement

FILE – Developer Harlan Douglass leaves a Spokane County courtroom after a hearing on an assault charge on April 16, 2015. He is now suing the former chief executive of his property management company, alleging she embezzled money by falsifying receipts and other financial records. (Dan Pelle / The Spokesman-Review)

Spokane developer Harlan Douglass is suing the former chief executive of his property management company, alleging she embezzled money by falsifying receipts and other financial records.

Rachel Murphy worked for Douglass Properties from 1997 until she was fired in June 2017, according to a complaint filed last week in Spokane County Superior Court. It states that she was authorized to use three company credit cards, cut checks to suppliers and contractors, and approve expenditures of subordinate employees.

“As CEO, Murphy answered exclusively to Douglass with all other Douglass employees answering to Murphy and Douglass,” the complaint states. She “was a trusted Douglass fiduciary enjoying a position of utmost trust and confidence which demanded loyalty, fidelity and honesty in her dealings with Douglass.”

The allegations date back to January 2013. Murphy was promoted to CEO sometime before then. The lawsuit, which also names her husband, Patrick Murphy, seeks a judgment of $275,000 with 12 percent annual interest, plus legal fees.

Rachel Murphy, who now works for a local landscaping firm, did not respond to a message seeking comment Friday. A message left with Douglass’ assistant was not returned.

Douglass’ attorney, Steven Hassing, said he couldn’t elaborate on the reason Murphy was fired, but he said it was unrelated to the allegations in the lawsuit.

Hassing said employees discovered the first signs of embezzlement while cleaning out Murphy’s office the day after her departure. They found receipts and credit card records, including some that had been altered with Wite-Out, he said. She used money stolen from the company to buy furniture, clothing and artwork, and hid some items in storage units that Douglass owns, Hassing said.

According to the lawsuit, the investigation continued through October of this year. Hassing said the company filled several binders with records detailing Murphy’s fraudulent activity. As Douglass’ “No. 1 trusted employee,” she had not always received the same level of scrutiny as subordinates, Hassing said.

“In an effort to cover up, hide and keep secret her embezzlement, Murphy falsified receipts and other records and passed them off to Douglass and his controller/bookkeeper as legitimate and true business records,” the complaint states.

This is not the first time Douglass has accused an employee of stealing from him. His former personal assistant, 26-year-old Bryan Reilly, is accused of cracking a safe and stealing $800,000 in cash from the Douglass family’s home in Colbert in September 2015.

Evidence of other thefts emerged as sheriff’s detectives looked into the matter. Apparently dissatisfied with the criminal investigation, Douglass filed a civil suit against Reilly in January 2016. That July, Reilly was charged with pawning his former boss’s stolen jewelry.

In May, a jury in the civil case found Reilly liable for the $800,000, plus 12 percent annual interest. He filed an appeal in June. A trial in the criminal case has been postponed and is now scheduled to begin in January.

“Mr. Douglass has 100 employees, and he doesn’t relish suing any of them,” Hassing said. “But you saw we’ve had two thefts. … If we don’t do anything about it, that would just invite more thefts.”