Chartering Funds for Himself | This Week in Nonprofit Fraud

Reposted from the This Week in Nonprofit Fraud Blog – December 23, 2013

EPA Official Pretends to be CIA Spy

Photo courtesy of Fox News

John-Beale-2

December 18, 2013: John Beale, the Environmental Protection Agency’s (EPA) highest paid employee, was sentenced to 32 months in prison for defrauding the U.S. government.  Since 2000, Beale claimed to be secretly working with the CIA, which “demanded” that he take extensive time off work, in one case for a full 18 months. In fact, Beale had no ties to the CIA, or even a security clearance for that matter, and would spend this “CIA” time at home reading books, riding his bike, or at his vacation home in Cape Cod. He even took personal trips adding up to $57,000 that he claimed were for CIA purposes, all on the government’s dime. He took one such trip after claiming that he was needed in Pakistan because the Taliban was torturing his CIA replacement.  He was finally caught when he publicly “retired” but kept drawing a salary, leading a top EPA official to alert the EPA’s oversight bodies. Beale has been ordered to pay back the undeserved $900,000 of salary and bonuses he took.

See more on this case at The Washington Post

Lesson Learned

  • Fraud perpetrators can be hiding directly in plain sight.
  • If a story sounds too good to be true, it probably is!
  • If one of your employees behavior changes dramatically, you should not hesitate to investigate.  Mr. Beale’s peers should have pressed the issue much further years before when they were becoming suspicious of his absence.

Raffa Forensic Practice Tips:

  • Your organization should have a conflict of interest policy that requires employees to disclose outside employment, and those disclosures should be reviewed by upper management.
  • Does your organization have a formal travel and leave approval and review policy? Do you verify out of town trips with employees calendars?

Chartering Funds for Himself

800px-FVES_Classroom

December 18, 2013: William Peterson, the former CEO of the Cleveland Academy for Scholarship, Technology, and Leadership, was sentenced to one year of probation and ordered to repay $275,000 for directing the charter schools funds to his personal businesses. Peterson, his wife, his brother, and a business partner, had received over $850,000 through a series of businesses that allegedly provided goods or services to the charter school, but there was no documentation to support the costs. Peterson’s wife and business partner are awaiting trial on charges that include theft and money laundering.

See more on this case at Dayton Daily News

Lesson Learned

  • It’s critically important that you know your business partners!
  • Even when you know and trust a business partner, you still need to make sure you have a formal system for purchasing to ensure you’re only paying for goods and services that you ordered and received.

Raffa Forensic Practice Tips:

  • Institute a formal purchasing system that requires purchase orders for all spending over a set dollar limit, as well as confirmation that the goods/services listed on an invoice were received and match what was ordered. The “three-way match” of the purchase order, invoice and receiving report is critical for the procurement of goods.
  • Does your organization have appropriate segregation of duties throughout the ordering and payment process to ensure that no single person has too much control?

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 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

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