Fraud from Home | Nonprofit Fraud Blog

Reposted from the This Week in Nonprofit Fraud Blog – September 1, 2014

A Pillar of the Community

Gym
Photo courtesy of Michael G. White, licensed under Creative Commons Attribution-Share Alike

August 29, 2014: Gene Lee, who pleaded guilty earlier this year to theft and tax evasion, has had his sentencing postponed, in part due to an outpouring of support from the very community he defrauded. Over the course of several years, Lee, a community leader and founder of multiple charities in Chicago’s Chinatown neighborhood, took $92,000 in donations from these charities, which were intended to be used for basketball tournaments and cultural outreach. Lee concocted a check cashing scheme with a restaurant that allowed him to “convert donations for his own personal use.” To cover the thefts, he falsified donation expense summaries. Lee admitted to using $43,000 to pay for suits, gas and other personal expenses, which he justified by claiming they were “related” to the charity. Sentencing will take place later this month.

See more on this case at DNAinfo Chicago and DNAinfo Chicago

Lessons Learned

  • Fraud is always committed by someone we know and trust – this case takes that trust to the extreme. Even after a guilty plea, Gene Lee’s victims continue to support him. During his trial, he continued to participate in events like ribbon-cutting ceremonies in Chinatown.
  • Lee also used the trust of the community to further his scheme by relying on a Chinatown restaurant to cash organizational checks for him, converting the proceeds into easily spent cash.

Raffa Forensic Practice Tips:

  • As a well respected leader in the community for many years, this case proves once again that nobody is above suspicion.
  • Does your organization stamp checks “for deposit only” to provide some assurance that they will reach their intended recipient?

Fraud from Home

Aquarium
Photo courtesy of Zac Wolf, licensed under Creative Commons Attribution-Share Alike

August 26, 2014: Lisa McMahon, a former payroll specialist at the Monterey Bay Aquarium Research Institute (MBARI) in California, was sentenced to 19 months in prison for wire fraud after stealing approximately $800,000 from the organization between 2005 and 2012. McMahon, who worked remotely in Arkansas after her family had relocated to care for an elderly parent in 2007, altered payroll and 401(k) records to conceal the fact that she was transferring the organization’s funds to her personal accounts. McMahon’s attorney claimed that McMahon was “motivated by a subjective perception of her personal obligation to aid family members and friends.” She has also been ordered to repay the money that she stole.

See more on this case at The Monterey Herald and SFBay.ca

Lessons Learned

  • One element found in every fraud is “pressure” – something that makes the perpetrator feel that they need to commit fraud. McMahon’s feeling of “personal obligation” drove her to steal to support family and friends – although $800,000 is more “greed” than “need.”
  • This fraud was hidden by McMahon simply altering payroll and 401(k) records. While not guaranteed, thorough review and auditing procedures would have increased the likelihood of this fraud being detected earlier, rather than continuing for seven years.

Raffa Forensic Practice Tips:

  • In this day and age where telecommuting is more prevalent, the risk of fraud can be heightened by the lack of personal interaction and increased difficulty of some review procedures.
  • Does your organization have appropriate segregation of duties, review, and approval processes for payroll functions?
  • Does your organization have continuous auditing and monitoring to try to detect frauds as early as possible?

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

This entry was posted in Forensic Accounting, Fraud Prevention and tagged , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s