Below you will find some financial fraud stores that may sound all too familiar. If they do and you are in a position to help, a certified fraud examiner may be just the ticket. Call Paul… 480-577-6776
Connecticut Kickback Scheme
An online MBA candidate student related the following kickback story to me. “My predecessor used a outside service company to perform elementary networking tasks for an astronomical high hourly wage. For simple tasks such as mounting and configuring networking gear at customer sites, he would require the outside service Cincinnati-based company to fly two high-level engineers to the site to perform maintenance.
He would then send a member of his own staff, who was also more than qualified to perform the same maintenance, to ‘oversee’, but not actually do any of the maintenance. Although the outside service company was only doing what my predecessor required and therefore legitimately sent those high-level engineers to the sites, it was totally fiscally irresponsible to our company.
The former manager racked up close to $3 million in business with this company in 2008. His reward was an all-expenses-paid trip to the Super Bowl for him and his brother from the outside service company. Fortunately for me, two weeks later he was fired and I got the job. I have since brought all that work in house and stopped doing business with that particular service company.”
Defrauding the Government in Pittsburgh, Pennsylvania
In 2008, an employee hoping to hide personal funds from the government hid the money in a company trust fund in order to gain personal government benefits. After ownership of the money would no longer affect receipt of those government benefits, the money was removed from the trust fund and given back to the employee.
The owner of the company was aware of this transaction as was his high-level employee who handled the trust accounts, placed the money, then later retrieved it. The controller was also aware of this fraudulent transaction, but none of them reported anything amiss.
Gilbert Social Services Non-Profit Fraud
A former CFO of Metro Care Services in Gilbert was accused of writing $116,400 in bogus checks to herself. The company provides home health and assistance services to the developmentally disabled. She spent 23 months from March of 2008 to February of 2010 disguising check payments to former or inactive service providers and then depositing those checks in her personal account. The former CFO, Carol Lynette Curie, was sentenced to 36 months in prison after pleading guilty to a felony theft charge.
Greater Phoenix Multi-location Retail Fraud
The former CFO was in his thirties, married with four children, attended church every Sunday, had a regular job with the Boy Scouts, was a college graduate, hard-working and trusted by all.
In other words, he was the typical accidental fraudster.
The owner hired my firm to help him determine if there might be something funny going on as cash was tight, though business was good, and the A/R was healthy, but the financial statements were 7 months behind. RED FLAG!
Though the CFO refused to share the bank statements with me, when the CFO went on a second honeymoon to Italy, the owner finally got six months’ worth of bank statement copies sent to him from the bank. One day later, I found fraud.
The former CFO for convenience, was a signer on the checking account, since the owner’s office was 25 miles away in another city.
Over a 57-month period, the former CFO wrote and signed 67 manual company checks to pay personal credit card bills, and other personal debts, the last manual check being written by him at 5am on the morning he flew to Italy!
In total, we identified 73 fraudulent checks totaling $231,299.
One of the ways the former CFO found money to steal was to write out vender checks, then put those checks into a locked file cabinet. When suppliers called looking for their money, they were given a check number and a date and asked to be patient waiting for the mail, but many vendors never received those checks.
In fact, the cash crunch got so bad under his watch, after the credit line was used up, the former CFO took $12,500 cash of his own money (well by then, was it really his own money?) and put it back into the company bank accounts, then continued his fraud for 6 more months, until he was confronted, confessed and fired, in May of 2008.
The last six months of company business was good enough that his last six months of embezzlement netted him another $55,219, stealing over $9,000 a month.
Though it took three years to see justice down, the former CFO was finally sentenced to six months in prison and is now in jail.
Mesa Flower Shop Fraud
The former owner related to me the following incidence of occupational fraud. Using bogus entries in the payroll system, his controller stole around $50,000 before she was caught. She did not repay much of her fraudulent takings, yet because the owner carried appropriate insurance, which was a rider on ordinary business liability insurance called dishonest employee insurance, he eventually recouped almost the entire $50,000 missing.
Miami, Arizona Federal Credit Union Fraud
In July of 2009, the former manager of the Marian Miami Federal Credit Union was indicted by a federal grand jury on 25 counts of alleged embezzlement totaling $1.18 million. The once-popular lending institution closed in December of 2006, after operating for 51 years. The former manager was hired in 1994 and became manager of the Miami credit union in 2000 at age 39.
The indictment alleges the former manager created 141 fictitious loans and 333 unauthorized transactions, occurring between July of 2004 and July of 2006. The scheme cycle included fake loan proceeds being issued and fake loan payments received, which were characterized as teller drawer transactions, (to avoid showing up on member accounts) throwing the cash out of balance, requiring new loan creation, ad infinitum.
Each count is punishable with up to 30 years in federal prison and $1 million in fines upon conviction.
In 2010, under a plea bargain agreement without appeal, former manager Marlene Aguilera Pena pleaded guilty to stealing $860,301 from the Credit Union and was sentenced to 51 months in prison.
North Carolina Dermatology Office Fraud
An online MBA candidate related the following fraud story to me. My student worked in a 3-location North Carolina Dermatology office with 30 employees and annual revenue of $2 million.
The practice manager worked there for six years before she was convicted of embezzlement. She was forced to repay $15K as that was all forensic accounting could prove to be taken, though it was believed she took much more. Employees saw her use the cash drawer to pay bills and she was also the biller. She paid herself bonuses and she paid unearned PTO to herself and others. The business never recovered and closed a year later.
Online Fraud Enabled by Google
A quote from the WSJ the summer of 2011 (8/24/11) says “In a rare public mea culpa, Google Inc. agreed to pay $500 million to avoid Justice Department prosecution on charges that it knowingly accepted illegal advertisements from “fake” (might actually be in India or Ukraine) Canadian online pharmaceutical drugstores.”
Many of the drugs in question are “controlled” substances, not available in the US without a prescription. Part of the settlement includes the agreement that Google will not admit any criminal liability, but they are admitting in hindsight that it was not a good idea.
This $500 million settlement is one of the largest forfeitures ever paid by a US company. Since 2009, when Google became aware of the Government investigation, they now have third party vendors to screen out the rogue pharmacies.
The government used a sting operation that included David Whitaker, a convicted con man who posed as the fictitious Jason Corriente. Whitaker bypassed Google’s automated advertising system and actually transacted business with Google flesh-and-blood ad executives. Federal Agents created a website to sell HGH and steroids. The Google ad executives helped Whitaker find a way around the rules Google had in place, according to Whitaker’s account.
By the end of the sting operation, government agents were buying ads for websites pretending to sell oxycotin and hydrocodone, both prescription-only narcotics.
For his “rather extraordinary” assistance and cooperation, Whitaker, who had pleaded guilty and was subject to a 65-year sentence, was sentenced to six years and will be released in 2014.
Phoenix Construction Company Fraud
One family member who helps run a Phoenix construction company told me the following unfolding story. The other founding member, without prior notification or required shareholder approval, pledged $275,000 of the construction company’s equity as collateral for a non-business-related loan.
Only in 2011, when the bank called the loan, did the other shareholders become aware of the loan’s existence. The entire $275,000 loan proceeds are gone. The other shareholders voted the empty-handed co-founder out of the company, but there are many unresolved issues, including the long-term viability of the construction firm.
Phoenix Marketing Firm Fraud
Phoenix marketing firm president Letty Alvarez told me the following story. A number of years ago, she was out of the office for an extended time for the birth to her 2nd daughter. However, since she was the signer on the checking account, she still came in from time to time to sign payroll checks and checks to pay her suppliers. Once about four weeks into her extended maternity leave, she noticed a wadded up check in the garbage can. She pulled it out, straightened out the check and discovered her badly forged name on the signature line at the bottom of the check.
Then she looked at the bank statement and noticed missing checks. After recovering more missing checks from dumpster diving, then doing sufficient research, Letty discovered 33 forged checks had cleared the bank for around $10,000 in purchases made by her secretary during her leave of absence. Bank policy on forged checks allowed her to recover all $10,000. She prosecuted her former secretary for fraud to the full extent allowed by the law.
Scottsdale Art Gallery Fraud
On Main Street in Scottsdale, in 2011, the owner of one of the better Scottsdale Galleries disappeared on the heels of a shortfall of hundreds of thousands of dollars. As the story was pieced together, the artists whose works were consigned to that gallery had noticed their payments from that gallery (after their consigned work sold) had climbed from 30 days, to 60 days, then to 90 days, before stopping altogether. RED FLAG!
When word went out that some of the paintings consigned to that gallery were missing, the new buyers of the works came forward and said they had purchased those paintings and had papers proving that they had bought those works from the gallery.
Upon hearing the purchaser side, one artist remarked that he was glad the art collector liked his work, that he did not have a beef with the collector, but rather with the gallery owner who disappeared. As information came out, it was discovered that the former gallery owner had a history of leaving as he had left behind a wife and children in England when he had come to America a few years before.
Utah Medical Practice Fraud
This story is from my brother, John Updike, who has an MBA, was a former Hospital CEO and is now a Physician Recruiter & Consultant.
More than a decade ago John recruited a board-certified family practitioner MD working in a Central Utah city. Dr. Jim spent four days a week in the emergency room and had a small, one-office, one-other-employee, medical practice on the side, seeing patients three times a week.
In a face-to-face meeting in Dr Jim’s office, the conversation went something like this.
Dr Jim: “John, I am not making money seeing patients, which is one of the reasons I contacted you and want to move. All I want to do is practice medicine.”
John: “Is your assistant honest?”
Dr Jim: “Yes.”
John: “If you don’t mind, let’s do some back-of-the envelope calculations.”
“How many patients are you seeing a day?”
Dr. Jim: “About ten or fifteen each day, three days a week.”
John: Can we estimate that each patient represents $50 revenue?”
Dr. Jim: “Yes.”
John: “Then you should see revenues between $8K and $10K each month before expenses.”
“What are your monthly expenses?”
Dr Jim: “About $2K a month utilities and rent and about $1K a month goes to my office manager.”
John: “Is your billing okay and up-to-date?”
Dr Jim: “Yes, I am sure we get the bills out.”
“But I am not realizing any money coming in from seeing patients. In fact some months I have to put in a little money from my emergency room job, maybe a thousand dollars or so.”
John: “You should be clearing about $5K to $6k per month, after office expenses from seeing patients in your office.”
Within a few weeks of this conversation, Dr Jim accepted a job in Washington and moved away from Utah. But he was slow to get his medical license in Washington. Why? Dr Jim discovered there was an investigation of his medical practice going on in Utah that interfered with his ability to get a medical license in Washington. He then hired an attorney to protect his interests, and he finally procured his license.
It turns out that the investigation in Utah was looking into the fact that there were multiple prescriptions traced back to his office for a controlled narcotic commonly used on the street. Then Dr Jim discovered that his supposedly honest office manager had used his signature stamp to fill out prescriptions that she then sold to other people, as he had never prescribed this drug.
The bottom line is that in addition to embezzling between $90K and $100K from Dr Jim’s medical practice, she also sold illegal prescriptions for money.
You may be interested to know whether the fraudster was ever prosecuted? No, as Dr Jim did not want to spend any more time or money or travel out of state, because he wanted to stay in Washington to practice medicine.
The moral of this true story is that in order to practice medicine, one needs to be business-wise and fraud-aware too.