It’s that time again… Time to share your predictions for fraud in 2013

Gypsy looking at an eight ball to predict the futureEach year, I ask readers of this blog to share their predictions regarding fraud in the following year.

If you have time, please visit the poll I created on LinkedIn.

I’ll share the results at the end of January.

Thanks for voting!

Paul McCormack

Need a writer that understands fraud? When you hire me to write an article, blog post, newsletter or white paper you get an accomplished writer that is also an expert in fraud.

paul@mccormackwrites.com

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Old enough to know better?

Mary Ella Hixon, what are we to do with you?!?

The 91-year-old former mayor just pleaded guilty to stealing $201,000 from River Falls, in southern Alabama.

The judge sentenced Mary to 10 years in prison. However, luckily for Mary, he suspended the sentence due to her age. She will instead be placed on probation for five years.

All going well, at age 96, Mary will be free to do whatever 96-year-old people do, sleep I guess…

Did the judge make the right decision? Should age play a role in the sentencing of white-collar criminals?

Need a writer that understands fraud? When you hire me to write an article, blog post, newsletter or white paper you get an accomplished writer that is also an expert in fraud.

paul@mccormackwrites.com

Open letter to would-be fraudster

Source: famliymwr

Dear Mr/Mrs Would-Be Fraudster:

I know you read this blog… I can see the search engine terms that you used to find “Fraud Happens”.

So, you want to commit fraud and don’t want your employer to catch you? I am glad that I can help! What have you learned from reading this blog?

Well, you’ve probably learned that committing fraud really isn’t that hard to do, and you may end up with millions of dollars. You may have also learned that working with a co-conspirator has its downside. If you work at a large company, you probably know that they respond to fraud losses differently than small companies. If you’re a government employee, you found out that fraud in the public sector can be just as damaging as fraud in the private sector. Finally, you may now know what could happen if you are caught. I guess that you are trying to determine if you would serve time, or merely receive a “slap on the wrist”. I hope you also learned that fraud destroys lives.

So what have you decided to do? Is the probability of getting caught so low that are willing to take the risk? Have you thought about how you’ll spend the money? Maybe you want to punish your employer? After all, you really don’t get paid enough…

Before you make the leap and begin stealing, do this for me… Close your eyes and begin to envision what your world would look like if you ended up getting caught. Will your significant other stay with you? How about the kids, will they understand why the new toys you just bought have to go back to the store? Will they want to visit your new “home” – the one with all the other “bad people” wearing the same clothes? What about your parents? How do explain your decision to embezzle money from your employer? After all they have tried to teach you, if only you had listened…

I understand why you are tempted to commit fraud. You and I both know that there is a chance that you’ll steal just enough to pay off overdue bills or buy that fancy car you’ve always wanted and not get caught.

Just remember this… there are people just like me all over the world that have dedicated their careers to fighting fraud. We’re not always perfect and we do make mistakes. However, for the most part, we’re really good at what we do. I hope you learned a great deal from reading my blog. If you’ve learned anything, I hope you’ve decided not to commit fraud. Contrary to what many would like to believe, fraud doesn’t have to happen. Ball’s in your court…

Paul McCormack

Need a writer that understands fraud? When you hire me to write an article, blog post, newsletter or white paper you get an accomplished writer that is also an expert in fraud.

paul@mccormackwrites.com

If you want to learn more about the “art” of interviewing fraud suspects, here is an interview that I gave on the subject. Let me know what you think…

CPE Link Blog

An interview with Paul McCormack, fraud investigator and educator…

How many fraud suspects have you interviewed in the course of your career as a certified fraud examiner?

After the first hundred, I actually stopped counting, but I’ve easily interviewed more than 500 people while investigating employee and third party fraud.

How is interviewing a fraud suspect different from the interrogations we see dramatized on TV?

The goals are very different. On TV, the actor-detective wants to force a confession. It makes for entertaining television. The goal of the interview in a private company is to encourage the employee to share information. Threatening him or her, with termination or legal action, isn’t appropriate or effective. In fact, there are legal risks to it. Tactics that may be appropriate for law enforcement can get you in trouble if you employ them as an interviewer in a corporation.

What qualities make a…

View original post 498 more words

Update: XM Radio Employee Sentenced to 15 Months

Photographer: Stephen McCormack

Photographer: Stephen McCormack

I have an update on a case that I previously discussed involving XM Radio. Valencia Person, an Accounts Payable coordinator just received a 15 month sentence for her role in the embezzlement.

The news article detailing her sentencing notes that Person agreed to a monetary judgment of $908,924. That doesn’t make much sense to me as the article later notes that Brenda Jones, her co-conspirator received $690,000 and Person received $125,000. May be there will be more information available when Jones is sentenced on August 16…

Now, I wonder how much the investigation cost to complete… I would hazard a guess that the total loss easily exceeds $1,000,000. Investing in prevention doesn’t seem so expensive after all, does it?

Need a writer that understands fraud? When you hire me to write an article, blog post, newsletter or white paper you get an accomplished writer that is also an expert in fraud.

paul@mccormackwrites.com

Employee fraud – the problem may be bigger than you think…

Before you can tackle employee fraud within your organization, you need to know how big a problem you have. An article that I wrote for Memento – a leader in enterprise fraud management – discusses a common mistake that banks make when tackling employee fraud. The principles that I share in the post are applicable to more than just banks.

Click here to read the post.

Please feel free to leave comments here, or on Memento’s blog letting me know what you think.

Need a writer that understands fraud? When you hire me to write an article, blog post, newsletter or white paper you get an accomplished writer that is also an expert in fraud.

paul@mccormackwrites.com

Bookkeeper plays “hide and seek” with company’s bank records

Source: Hyku

Bonnie Denning didn’t want the owners of Easy Picker Golf Products to see the company’s bank records, and now we know why! Over the course of less than 12 months, Denning alledegly embezzled $818,339.37 from the Lehigh Acres company using wire transfers, a debit card linked to the company’s accounts, and one check (I suspect that there will be more fraudulent checks uncovered in due time).

Here is a break down of the loss:

  • 60 Debit card transactions – $411,387.00 

Alledegly used to used to buy clothes, gas, electronic goods and home furniture.

  • 54 wire transactions – $358,885.50

Alledegly included $4,799.58 to purchase granite for Denning’s home and $29,160.00 associated with a drug rehabilitation program for a relative

  • 1 check – $5,295.76 for shutters for Denning’s home

Total loss – an eye popping $818,339!

Here are some lessons learned:

  1. Denning refused to turnover the company’s bank records to the owners. In fact, the owners had to request the statements directly from the bank! That is a GINORMOUS red flag. Never, I repeat never give your bookkeeper sole custody of your company’s bank records.
  2. The bank issued a debit card to Denning apparently without the knowledge of the owners. I’ll leave it up to the owners and the bank to decide who is at fault here; however, as I have said before, relying exclusively on your bank to prevent embezzlement is a losing proposition.
  3. Engaging a bookkeeper should never result in the the owners abandoning oversight of the financials. To the contrary, owners must stay engaged and ensure that the bookkeeper compiles the results in an accurate and efficient manner. Put simply, not paying attention can cost you dearly.

I sincerely hope that the Easy Picker Golf Product Company can survive this catastrophic loss. I can only imagine how the owners must feel.

As this case develops, I’ll keep you posted.

Need a writer that understands fraud? When you hire me to write an article, blog post, newsletter or white paper you get an accomplished writer that is also an expert in fraud.

paul@mccormackwrites.com

Punishing the white collar criminal

“The judge opened his file and retrieved the case’s sentencing memos, plea agreement and lengthy pre-sentence report, which he had read over the past few days and which spelled out the case’s particulars: Borgono had pleaded guilty to conspiring to defraud the federal government by falsifying records that allowed her boss, the president of a Miami-based export company, to steal more than $10 million from the Export-Import Bank of the United States”

–  Judge who had ‘no passion for punishment’ retires after 31 years, The Washington Post, June 1, 2012

The Washington Post Article referenced above provides a ‘behind the scenes’ look at the challenges facing the judiciary when sentencing white collar criminals. Should society punish white collar criminals to the maximum extent allowable under the law, or does it make more sense to show compassion? Does tough sentencing for white collar criminals discourage “would be” fraudsters? How important is it to rehabilitate the offender?

Consider the vast difference between the punishment that the federal prosecutors argued for and the request made by Borgano’s defense attorney:

“Because so much money had been stolen, federal prosecutors argued in court papers that Urbina should sentence the former office manager to 18 months in federal prison. Her attorney countered that Borgono deserved just a year of home detention and two years of probation because the Peruvian immigrant, who became a U.S. citizen in 2007, had not reaped a dime in the scheme’s proceeds beyond her $500 weekly salary. She had cooperated extensively with authorities and had helped them build their case against her boss, a man sentenced by Urbina to nearly four years in prison. She also had the support of her community, the attorney said. The judge’s folder was filled with heartfelt letters from relatives, friends and even her priest.”

More on who won that fight in a minute…

In addition to the investigations that I personally conduct, each week I review over fifty cases involving fraud and intellectual property theft to determine which examples to include in our Global Knowledge Center. The differences in the sentences handed out to white collar criminals are truly startlingly, and in some cases alarming. Even within the same jurisdiction, the sentences handed down vary significantly. And let’s not forget that the Internal Revenue Service may also take an interest in the case. Or not… I have yet to understand the criteria that the IRS applies when determining which cases involving fraud and unreported income are worthwhile pursuing. That’s a discussion for another day…

I understand better than most that each case is unique and numerous factors must be taken in to account before a sentence can be handed down. But let’s consider the variation in sentencing from the “would be” fraudsters perspective. Does the threat of prison time factor in to their decision making process? Should it? What are the odds that they will be caught in the first place? Why consider the worst case scenario when committing fraud is so incredibly easy to do?

The case highlighted in the Washington Post article is somewhat different as Norma Borgano did not personally benefit from the fraud – her boss Guillermo O. Mondino did and he received 46 months in prison for his troubles.

So let’s compare Mondino’s sentence to the 66 months that Patricia K. Smith,the perpetrator of a $10.2 million dollar fraud received. That’s a difference of 20 months, or nearly two years. I fully understand that each case is different, but is Smith’s crime anymore heinous than Mondino’s? In fact, Mondino’s fraud involved a far higher potential loss of $24 million. Did Mondino’s attorneys do a better job defending their client? Who knows, but the difference is significant – especially if you are the unlucky individual serving the “extra” 20 months!

As for Norma’s fate, she received a year of home detention, four years of probation and $5,000 in restitution payments. Is that an appropriate sentence? Let’s be honest, who are we to judge?

Need a writer that understands fraud? When you hire me to write an article, blog post, newsletter or white paper you get an accomplished writer that is also an expert in fraud.

paul@mccormackwrites.com

Oh what a tangled web we weave… what happens when you can’t trust anyone?

Of all the government agencies to steal from, the National Security Agency would probably be the last one on my list. If just half of what the media says they can do is true, surely, they have the capability to uncover a fraud perpetrated by a vendor.

Yet, Bechdon which made metal and plastic parts for the NSA, successfully defraud the agency over a ten year period. The father son team of William and Donald Turley overbilled the agency for hours that their company never worked. As an aside, I am curious as to why the NSA would pay for parts produced by the hour and not on a fixed price basis, but I suppose we’ll never know the reasoning behind that decision.

The father son duo both confessed to the fraud during clearance interviews as part of the process for bidding on sensitive NSA contracts. Surprisingly, they confessions came over a year apart. William Turley confessed in March 2006, and Donald the following year in April (Why it took the NSA more than a year to complete the second interview is anyone’s guess).

Now for the twist that all good stories involving the NSA should have… Enter Christina Turley Knott, William Turley’s daughter and Donald Turley’s sister…

Christina is by far the more accomplished fraudster. She managed to embezzle $4.5 million from Bechdon without the knowledge of her father or brother! Presumably, while the father and son were busy bilking the NSA, they didn’t pay attention to the fraud happening beneath their noses. Christina will be sentenced shortly for her fraud, but initially the family declined to turn her in as they feared she would disclose the NSA overbilling scheme.

The moral of the story? Don’t expect your employees to act in an ethical manner if they see your company’s leadership defrauding others. The “tone at the top” is often thrown around as important to preventing fraud. In this case we can see what happens when owners or senior executives abandon their ethics at the front door. There is no honor among thieves, especially when there are millions up for grabs. Just ask the Turleys…

Read more here

Need a writer that understands fraud? When you hire me to write an article, blog post, newsletter or white paper you get an accomplished writer that is also an expert in fraud.

paul@mccormackwrites.com

$2.7 million embezzled from Arizona National Guard

While members of the Arizona National Guard were in harm’s way, James Eugene Burnes, a retired Army colonel took care of business on the home front. Unfortunately, he put his personal business above the needs of the National Guard. Between May 2003 and August 2011, Burnes embezzled $2.7 million from the Arizona National Guard Family Emergency Fund and the Arizona National Guard Emergency Relief Fund.

Apparently, Burnes had fallen on hard times. Just three years after retiring from the Army on presumably a healthy pension, he began committing fraud in his new role as a resources manager for the Arizona Department of Emergency and Military Affairs. From all accounts, he had a gambling habit that needed to be fed. To cover his tracks – as so many perpetrators of fraud do – he created fake financial statements and audit statements.

Here is how he stole the money:

  • Withdrew $1.9 million in cash during 675 separate visits to the bank (He visited the bank as often as 20 times a month).
  • Wrote 169 checks totaling more than $400,000
  • Purchased 32 cashiers checks for more than $332,000
  • Authorized electronic transfers of $40,000

Management oversight was apparently lacking and numerous red flags were ignored. In fact, an employee within Burnes organization uncovered the fraud and shared the information with a supervisor. The fraud continued for another five months before the supervisor confronted Burnes and initiated a review of bank records which confirmed the fraud.

I am sure that the Arizona National Guard thought it was appropriate to trust “one of their own” – a retired Army Colonel. If only life were that simple… Burnes may have been an exemplary officer while on active duty, but as I have said before, even good people make mistakes. Burnes will found out soon how much he’ll have to pay for his mistake when he is sentenced later this year.

Trust too much, and employees may view it as a sign of weakness. Call me cynical, but if my experience has taught me anything, it is that organizations routinely place far too much trust in their employees. If you ever catch yourself saying that you trust your employees and they would never steal from you, it may already be too late. Trust me; I built my career as a fraud consultant based on employers trusting that their employees will never steal. Guess what? Fraud happens.

Learn more about the case here and here.

Need a writer that understands fraud? When you hire me to write an article, blog post, newsletter or white paper you get an accomplished writer that is also an expert in fraud.

paul@mccormackwrites.com