Paying for His Trust | This Week in Nonprofit Fraud

Reposted from the This Week in Nonprofit Fraud Blog – February 10, 2014

A Different Definition of Public Service

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Photo courtesy of Fox 29 News, Philadelphia

February 7, 2014: Tony F. Mack, the mayor of Trenton, New Jersey, has been found guilty of extortion and bribery for accepting bribes related to the construction of a parking garage on city-owned land. Mack sought $100,000 in bribes to sell a $200,000 parcel of property to be used for parking.  Several co-conspirators, including Mack’s brother, Ralphiel, were also convicted; they had used code names and other measures to try to hide the mayor’s involvement.  Investigators found that the conspirators avoided discussing the scheme over the telephone, and when they had to, they used codes like “Uncle Remus” to mean “a bribe.” Investigators also found $2,500 in cash hidden in Ralphiel Mack’s home, bearing serial numbers which could be traced to a bribe. New Jersey law prevents Tony Mack from continuing to hold office, so Trenton will be electing a new mayor in a special election.

See more on this case at NPR

Lesson Learned

  • With great power comes great responsibility. Elected officials have a fiduciary duty to their constituents, and Mayor Mack chose personal gain over the best interests of Trenton.
  • Mayor Mack also enlisted close friends and family to help in his corrupt scheme. No doubt, he was hoping that they would “take the fall” if the scheme was uncovered, but fortunately for Trenton, a strong investigation by authorities tied the Mayor to the money.

Raffa Forensic Practice Tips:

  • Always watch for unnecessarily close relationships with vendors, customers, or other outside parties. A particularly close relationship can be a red flag for corruption.
  • Does your organization have a conflicts of interest disclosure policy?

Paying for His Trust

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Photo courtesy of the Courier UK

January 10, 2014: A British supervisory postman, Rashid Hussein, has been found personally liable for the fraud of one of his employees and ordered to pay back £16,500 to the British government. Grant Keay, one of Hussein’s employees, stole over £16,500 from the post office by making over 75 fictitious loan transactions to himself. When postal investigators identified the potential fraud, they suspended Keay and Hussein; Keay was convicted and sentenced to jail, but not ordered to pay restitution. But, under the terms of Hussein’s contract with the Post Office, he was personally liable for the funds. Hussein claimed that the fraudulent transactions were all automated and that “there was no paperwork or details for [him] to check.”

See more on this case at The Courier UK

Lesson Learned

  • Trust is not an internal control! After he was ordered to pay back the stolen funds, Hussein said that “Keay was trusted to do his job properly, but he fooled me and he fooled the Post Office for a long time before they figured out what was really happening.”

Raffa Forensic Practice Tips:

  • In the U.S. too, officers and executives of an organization can be held liable for the frauds of their employees under some circumstances. Negligence in supervising an organization’s internal controls and the activities of its employees can come back to haunt even board members.
  • Does your organization have strong, involved leadership in designing and implementing an internal control structure that doesn’t rely on trust?

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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