Who is to blame for $10.2 million embezzlement?

Just when you think you’ve heard it all…

This case involves the Pope, travel on corporate jets, the Superbowl, and a celebrity chef. In fact, it is so unusual that I had to include it in our proprietary global knowledge center (enter 8688JGT for 3 months free access). Since it is included in our database, we have already analyzed the case and provided a list of lessons learned. Before I share some of that information here, let’s learn about the fraud.

Patricia K. Smith, the former controller for Baierl Acura, pleaded guilty to taking $10.2 million from the dealership over a 7 year period. Smith moved money from the dealership’s business accounts to her personal account using over 800 Automated Clearing Housing (ACH) transfers. Smith then used the proceeds to fund the following expenses:

•    $1.8 million billed to American Express for private jet charters; travel to seven countries in Europe and four islands in the Caribbean

•    $44,500 for four club-level tickets along with full hospitality at Super Bowl XLV

•    $32,500 for a luncheon for six people prepared by Food Network star Ina Garten at her barn in East Hampton, NY

•    $5,000 for “The Vatican Package,” which included Mass in Papal Audience with VIP seating, air fare for four, VIP tour of the Vatican Museum with a private tour guide, and a private tour of the Sistine Chapel with family before it is open to the public

•    $2,500 for a Phantom of the Opera experience, including costume fitting, wig fitting, an escort onstage during the Hannibal Opera sequence, and four seats for the performance.

She also purchased the following assets which will be subject to forfeiture:

•    Four houses— three in Pennsylvania and one in Georgia

•    10 vehicles, including three Acuras, four Hondas, and a Mustang convertible (At least she remained loyal to Acura / Honda)

•    Stocks, jewelry, cash, gold coins and personal property, including flat-screen televisions, a mink coat and a baby grand piano.

I have my own thoughts on who is to blame, but I would like to hear your perspective before I weigh in. Please register your vote in the poll at the top of the article. I’ll share my thoughts in a subsequent blog post.

FBI Press release

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About Paul McCormack
I have over 20 years of experience in corporate fraud and intellectual theft prevention, detection and investigation. Unlike many fraud experts, I have both industry and professional services experience. To date, I have conducted over 800 interrogations of fraud suspects including numerous senior corporate executives. As a freelance writer, I have written over 1,000 articles on a broad range of topics. My areas of expertise include: • Asset Misappropriation • Big Data • Bribery, Corruption, and Collusion • Check, Wire, ACH, and Credit Card Fraud • Consumer Fraud • Corporate Security • Cybersecurity • Data privacy (Europe, Brazil, Russia, India, and China) • Drug Trafficking • Embezzlement • Employee Fraud • Executive Protection • Fintech • Financial Statement Fraud • FCPA • Healthcare fraud • Identity Theft • Intellectual Property Theft • Internal Audit • Interrogation Tactics • Loss Prevention • Mobile Fraud • Money Laundering • Operational Excellence • Organized Crime • Payments Fraud • PCI Compliance • Retail Fraud • Risk Management • Terrorism and Counterterrorism • UK Bribery Act • Workplace Violence

10 Responses to Who is to blame for $10.2 million embezzlement?

  1. Julia says:

    That is nearly unbelievable, but we see it all the time, unfortunately. Sophisticated fraudsters milk employers over a long period of time so it goes unnoticed. However, good detection systems would have detected an anomaly in the ACH originator (how often s/he logs in, time of day, the recipients to whom the money is being sent, etc.).

  2. “That is nearly unbelievable” – that sums this situation up perfectly!

    There are so many angles to this fraud… thanks for weighing in on the ACH origination aspect.

  3. Gloria Perez says:

    First of all from a bankers eyes, -*not at all surprised*. My daily responsibility is to review and research our customer account activity to ensure it makes sense, according to their occupation and nature of business. Unfortunately, companies rely on people like Ms. Smith adding them as controllers of the accounts held at the bank without any limitations. Should there have been limits set this might have been avoided. On the other hand if an authorized signer on the account has no limitations, the bank has no way of stopping these transactions.

  4. Bruce Wilbat says:

    WHY IS THERE NO CHOICE FOR PATRICIA? Yes, internal controls must have been faulty both at the dealership and the bank, but the fraud would never had occurred in the first place without Patricia’s decisions to commit the fraud. Yes, you can say her observation of the lack of controls at the bank and the business tempted her, but that still doesn’t mean she is off the hook. This is the same as if there was a bag full of money in a room and you could take it and no one would ever know, would that be moral? Who’s at fault – the person who left the money unattended or the person who took it?

    Is the fact that Patricia was not listed as a choice yet ANOTHER case where the perpetrator is not responsible for his/her actions in today’s society. I saw a story yesterday on the news where the driver involved in a hit and run, where he killed a person, and was guilty of DUI, is suing the victim.

  5. Gloria, great feedback from the banker perspective. Having worked at SunTrust, I can definitely relate to your perspective.

  6. Bruce, very interesting angle… To be honest, it never occurred to me to add Patricia as an option. In hindsight, I should have considered doing so.

    I suppose that since Patricia committed the fraud and has confessed, in my view she is explicitly at fault. I understand the analogy involving a bag of cash left in a room. However, an employee / employer relationship, at least from my perspective is a little more involved.

    An employer has ample opportunity to stop employee fraud, or at least make it more difficult to commit. From a fraud triangle perspective, the company can take many steps to control the “opportunity” to commit fraud and to a lesser extent, certain elements of the rationalization and pressure components.

    In the “Dishonor among thieves” post I discussed the importance of positioning your organization to prevent and detect fraud. Placing the blame solely on Patricia’s shoulders is an easy concept to understand. However, from my experience, white collar criminals are rarely evil or “bad” people. Often circumstances conspired to make committing fraud too tempting to resist.

    In summation, the employee is certainly responsible for their actions. Patricia will pay dearly for her actions. I also don’t want to place all of the blame at the company’s door. Companies don’t “deserve” fraud losses. However, removing the temptation to commit fraud is something that all companies should invest time and money to do. After all, their employees are only human and we often make terrible mistakes…

    Thank you very much for sharing your thoughts.

  7. Scott Grant says:

    The circumstances surrounding this embezzlement are so similar to the many investigations that I carried out in my previous life as a Detective in a Specialist Fraud Unit, which dealt with large scale and complex corporate frauds and embezzlements.

    Firstly, with regards to the company aspect, there was normally too much trust and control left with one person and little or no segregation of duties.

    Secondly, I imagine that fellow employees might have been aware of a dramatic change in lifestyle yet chose to ignore or not advise the company from potetial fear of reprisals as being the whistleblower, though perhaps an inadequate internal reporting system.

    Thirdly, given the length of time this particular embezzlement was perpetrated, we have to question the internal controls/ audit of the company and or external audit and the roles of other management during the timescale.

    Is the Bank to blame? – again in relation to previous investigations, I would say yes to a certain extent but at the same time agree with Gloris’s post too.

  8. What we’re missing, and it’s critical to our understanding, is details on what the underlying controls were and which controls were either absent or bypassed, and if bypassed, how that was allowed to happen. My guess is a business owner who was not closely following the financial details of his business.

  9. Pingback: 9 million reasons to fight internal fraud « Fraud Happens

  10. ESJ says:

    As her son, people can tear into this until the cows come home, but they will never get the true story on the details.

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