Like Taking Candy from a Baby | Nonprofit Fraud Blog

Reposted from the This Week in Nonprofit Fraud Blog – April 14, 2014

Giving Up Fraud for Passover

sanctuaryWIDE

Photo courtesy of Congregation Beth El

April 7, 2014: Eric Levine pled guilty to stealing $395,000 from Congregation Beth El Synagogue of La Jolla, California. As the executive director of the synagogue, Levine had control over the synagogue’s bank accounts and books and was able to conceal his theft by falsifying financial records and budgets. As with many fraudsters, Levine spent his illicit funds in extravagant ways, taking lavish vacations, purchasing fancy jewelry and enrolling his children in private school. Levine hid payments to himself within the books of the synagogue by mischaracterizing expenses with less conspicuous titles such as: “Rabbi Emeritus,” “Landscaping Expense,” and “Janitorial Expense.” Levine will be sentenced on June 27, 2014, and faces up to 20 years in prison.

See more on this case at FBI.gov

Lesson Learned

  • Many fraudsters display behavioral red flags that can indicate improper behavior to those charged with the governance of organizations. One such characteristic is lavish spending habits such as those shown by Levine.

Raffa Forensic Practice Tips:

  • Fraudsters exhibit tell-tale signs of their improper activities and can be caught early if employees are trained to spot those signs and have a safe way to report suspicious activity.
  • Have your employees attended fraud prevention and detection training?
  • Does your organization have an anonymous fraud hotline?

Like Taking Candy from a Baby

Calhan_Colorado_High_School_Cafeteria

Photo courtesy of David Shankbone

April 9, 2014: Antonio Hurt plead guilty to stealing approximately $2 million in government funding that was intended to feed the underprivileged children that attended Hurt’s daycare centers. Hurt was the CEO of Bright Star Early Learning Centers, which participated in the Department of Agriculture’s Child & Adult Care Food Program (CACFP). Between 2007 and 2010, the daycare centers submitted millions in inflated CACFP claims which were siphoned off into a personal account which was controlled by Hurt. Hurt spent his stolen funds on a lavish lifestyle, but also used a portion of it to acquire loans to expand his business and, in turn, his fraud. If the funds had been from a general purpose grant, Hurt would have been able to justify the monies spent on acquiring business loans. However, as these funds from CACFP were restricted only be used to feed the children attending the daycare centers, the funds used on pursuing loans are just as illicit as those used for personal expenses. Sentencing is scheduled for Hunt on June 18, 2014.

See more on this case at FBI.gov

Lesson Learned

  • Funding for non-profits is often restricted on purpose. Restricted funds should be kept separate from other monies and an additional review process be put in place in order to assure that the funds were used only for the intended purpose.
  • This fraud could have been prevented if an independent review had been put in place to check the legitimacy of expenses before they were submitted for reimbursement under the grant.

Raffa Forensic Practice Tips:

  • Organizations that receive restricted funds should separate these funds from other monies and ensure that expenditures undergo an additional review for any restrictions on their use.
  • Does your organization have policies and procedures specific to the expenditure of restricted grant funds?
  • Does your organization have appropriate segregation of duties for all expenditures, including restricted grant funds?

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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