Time is Money | This Week in Nonprofit Fraud

Reposted from the This Week in Nonprofit Fraud Blog – November 25, 2013

The “Fairy Godmother” Isn’t So Generous

Photo courtesy of Greg Dohler/The Gazette

November 25, 2013: Ephonia M. Green pled guilty to embezzling $5.1 million from the nonprofit Association of American Medical Colleges (AAMC) while working as an administrative assistant. She also owned a bridal shop in Upper Marlboro, Maryland, and gave away nearly 300 dresses to military brides, which earned her the nickname of “Fairy Godmother” in the military community. Green stole $1.4 million through checks made out to her bridal shop, and the rest by registering bank accounts in names highly similar to AAMC’s approved vendors. She had access to key financial systems which allowed her to approve payment for fake invoices (which she had created), and have the checks sent to her. The scheme was discovered by a bank, which held payment on one of the fraudulent checks and notified AAMC. Green started her fraud scheme with small thefts, then expanded until she eventually stole nearly 90 times her annual salary. AAMC said that they were unaware of her side business and of the bridal gown giveaways.

See more on this case at The Washington Post

Lesson Learned

  • Having proper segregation of duties and proper management reviews are critical to stopping fraud. In this case, an administrative assistant with expansive accounting system access was able to single-handedly steal millions without being noticed! It was only discovered after many years by a bank employee questioning and withholding payment on a check being deposited by the perpetrator.

 Raffa Forensic Practice Tips:

  • Always segregate the custody of the asset with the recordkeeping (accounting books and records).
  • Make sure that your staff’s access to financial systems is limited to what is necessary to fulfill their assigned duties. Should an administrative assistant have access to the accounting system to enter vendor information and be handling checks and vendor payments?
  • Have bank statements reviewed by an independent person to identify questionable transactions. Who is receiving bank statements in your organization and reviewing them for anomalies?
  • Does your organization have continuous monitoring to help identify questionable vendors and transactions?

Time is Money

Photo courtesy of the New York Daily News

November 24, 2013: Mark Mazer, Dimitry Aronshtein, and Gerard Denault were convicted of defrauding New York City (NYC) in conjunction with a contract to modernize NYC’s timekeeping systems for city employees. The project was originally budgeted at $63 million, but ended up costing the city more than $600 million! Mazer was found to be the mastermind, steering subcontracts to firms controlled by his co-conspirators and using shell companies to launder the money. Aronshtein was found guilty of paying bribes and kickbacks to Mazer. NYC had previously recovered $500 million from the project’s prime contractor, SAIC, who avoided prosecution.

See more on this case at The New York Daily News

Lesson Learned

  • When actual costs begin to exceed budgets, it may be an indication that funding is being used to further a fraudulent scheme instead of a legitimate business purpose.

Raffa Forensic Practice Tips:

  • Pay attention to actual performance versus budgets and investigate thoroughly the reasons for budget overruns, particularly of a significant nature!
  • Does your organization have a strong budget review process and ongoing budget reviews?
  • Do you review the vendors and contracts to assure compliance? Do you do background investigations on large vendors to uncover any potential undisclosed conflicts of interest or other anomalies?

He Shouldn’t Have Messed with Texas

November 21, 2013: Charles Pircher pled guilty and faces up to 20 years in prison for what is being described as San Antonio’s largest-ever fraud case, resulting in $133 million in losses. Pircher used a series of payroll outsourcing firms to steal payroll tax withholdings and workers compensation insurance premiums for a huge number of small organizations. After diverting payroll taxes meant for the IRS, he would walk away from the outsourcing firms, leaving the small organization responsible for the tax debts he had racked up on their behalf. He used his ill-gotten gains on multiple homes (including a 551-acre horse ranch), vacations, gifts for girlfriends, and gambling trips. Pircher had previously been convicted of bank fraud in the 1990s and served 5 years in prison.

See more on this case at Government Security News

Lesson Learned 

  • Many times companies outsource their payroll functions to a third party processing firm.  Organizations need to be extremely diligent when it comes to payroll tax withholdings, because the organization and its officers can all find themselves personally liable to the IRS as a result of nonpayment.

 Raffa Forensic Practice Tips:

  • Hiring a contractor to handle some management services, such as payroll processing, doesn’t mean that your organization may not still find itself facing liabilities down the road.  Many small outsourcing firms fail and leave their clients “holding the bag.”  Do you perform a background due diligence investigation on critical third party contractors that you do business with and could potentially expose you to significant risk?
  • Does your organization have oversight procedures in place to ensure that fiduciaries are fulfilling their duties when it comes to paying creditors?
  • Are you automatically informed when payroll taxes and other critical withholding payments are remitted to the IRS and other third parties with proof?

DON’T BE THE NEXT VICTIM OF FRAUD! 

The Raffa Forensic Accounting Services Practice offers a wide variety of fraud prevention and detection services including Fraud Risk Assessments, Background and Workplace Investigations, Fraud and Internal Investigations, Transactional Due Diligence Investigations, Anti-Fraud Consulting and Training, and Computer Forensic Analysis.

For more information on the Raffa Forensic Accounting Services Practice please visit us at www.raffa.com/ProfessionalServices/Forensic/ and the Nonprofit Fraud Prevention Institute at http://www.raffa.com/Fraud.

You can also contact the following Raffa professionals with any questions or if your organization needs assistance in fraud prevention:

Lawrence J. Hoffman, CPA/CFF, CVA, CFE, Senior Partner:  Lhoffman@raffa.com
Leslie C. Kirsch, CFE, Manager:  Lkirsch@raffa.com

The mission of the Raffa Nonprofit Fraud Prevention Institute is to educate and provide resources to the nonprofit community in fighting the global threat of fraud and abuse in nonprofit organizations.

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