$5.7 Million Embezzlement Scheme

post dateApril 19, 2016  •   post categoriesembezzlement, Embezzlement and Internal Fraud  •   post comments number0 comment

This morning I received an Immediate Release notification from the Department of Justice, U.S. Attorney’s Office, District of Minnesota about an embezzlement scheme. In bold print, Former CFO Of [City] Industrial Contractor Charged With Embezzling More Than $5.7 Million

The story behind this alleged scheme differs little, if any, from those crimes that I have analyzed, investigated, and written about for decades. Here are a few pertinent facts pertaining to this particular case:

(1.) This individual held a position of trust. Her employer was an industrial contracting company, and she was the company’s Corporate Controller and Chief Financial Officer.

(2.) Her alleged crimes went unnoticed for a decade (June 2006 and November 2015).

(3.) According to the D.O.J. information, after registering her corporation, the defendant opened a bank account at a local bank in its name for the purpose of embezzling money from her employer.

(4.) During that period, the defendant issued at least 19 checks and made wire transfers totaling approximately $4.5 million from her employer to the Nebraska-based corporation she controlled.

(5.) To assist in her scheme, the defendant signed the above checks using the “signature stamp” of another executive without the authority or knowledge of that executive.

(6.)  The defendant also entered false entries into her employer’s general ledger to disguise the illegitimate checks as payments to [company] partners or payments to legitimate [company] vendors.

(7.)  After depositing checks into the [company] account, the defendant transferred the funds she had stolen into her own personal bank accounts.

(8.) According to the information, the defendant also fraudulently issued [company] checks payable to another company. It is alleged the defendant had access to and control over the bank account of this other company. Between June 2006 and November 2015, it is alleged the defendant issued approximately another 25 fraudulent checks into this account, totaling more than $1.2 million. The total amount involved in the embezzlement scheme exceeded $5.7 million.

The FBI investigation revealed that the defendant used the illicit proceeds to buy five houses and other real estate in Florida, Minnesota, Tennessee, and Arizona, as well as at least three automobiles, two all-terrain vehicles, a motorcycle, a jet-ski, and a sailboat.

My Comments on the Embezzlement Scheme

As stated at the on-set of this article, the above case is no exception to the kinds of internal-fraud and embezzlement cases that are occurring throughout the United States. Hundreds, if not thousands, of business operations are engaged in risky practices primarily revolving around “multiple-tasking,” the single-most critical red flag for risk of fraud/embezzlement in all types of organizations. Could the above losses have been prevented? You better believe they could have! As I have said many times before, anytime an employer—large or small— allows a single employee or executive to perform a series of critical job tasks without adequate internal controls and oversight, the individual, if dishonest, has the power to manipulate matters and conceal deceit.  

My Questions About the Scheme

As for the above case, specific questions I would be asking since this scheme lasted ten years would include:  

1. How was it possible for the crimes to go undetected for such a considerable amounts of time?

2. Why did the auditors fail to uncover this ongoing scheme?

3. Has anyone ever voiced concern for the weak internal controls within this organization, and if so what corrective actions were taken?

4. Is this organization so busy that executives must use a personal “signature stamp,” or for their convenience, sign blank checks?

5. How was it possible for a single executive to add a new vendor to the company’s authorized payment list without a second executive’s approval?

6. Who, other than that CFO, regularly balanced bank statements?

7. What type of fraud/embezzlement-awareness training has management of this company had?

8. What were the red flags that were ignored?

9. Were there coworker’s suspicions? (If so, why didn’t they come forth?)

10. Why was it necessary to give a single employee/executive the ability to perform those high-risk multiple tasks without constant oversight and close monitoring?

Embezzlement/Internal Fraud cannot occur within any operation unless management

has placed unbridled trust in the employee committing such an act.