Billy Petty, CFE Austin Police Department White Collar Crime Unit. Learning Objectives

Transcription

1 Billy Petty, CFE Austin Police Department White Collar Crime Unit Learning Objectives Identify red flags likely to be found in criminal acts involving crimes in which government is a victim or a tool of the crime. Describe three methods in which government offices were involved in fraudulent acts. Describe the difference between fraud and theft. Explain why a bad act may not be a criminal act. Explain the difference between information, evidence, and proof. Describe five possible responses to discovering a criminal act. 1

2 Case Study #1 Using government as a tool of fraud Local Austin Attorney Attorney Ad Litem for children in personal injury cases Alleged misapplication >$670,000 Misapplied money from judgments rather than remitting it to the clerk s registries Occurred for more than 10 years Detected when a child came to get his money which was not in the registry Red Flags Case #1 Attorney bringing in settlement money on old cases just before children turn 18 No reconciliation between judgments and receipts in clerk s office No Form W9s for children receiving money into the registry Single person responsible for receiving money and remitting it to the registry 2

3 Case Study #2 Misapplication of Government assets by a high level employee: Victim is a large government agency Defendant was a director at the agency Defendant had access to checks and was responsible for reconciliation (not an account signer) Oversight of the account was conducted through reports created by the defendant Loss was >$547,000 Occurred for more than 10 years Detected when a bank statement was misrouted Red Flags Case #2 Lack of complete segregation of duties Statements being sent to an director rather than accounting group Living beyond means Checks payable to an employee One person responsible for all aspects of the account except signature authority Paid checks removed from bank statements 3

4 Case Study #3 Misapplication of Government assets by a midlevel employee Victim is a small government agency Defendant was a chief clerk who received payments and issued receipts for payments and oversaw the accounting of money received by clerks Defendant took parts of cash payments received by the office Alleged misapplication >$60,000 Took place over 4+ years Amount received changed in the accounting software after receipt was printed, while the full amount was recorded in the hard copy working file Red Flags Case #3 No reconciliation between other files and the accounting software Accounting software indicated that not all of the monies had been received not reconciled against expected receipts No checks of the audit trail in the accounting software for changes to receipts Cash envelopes with alterations; or not in the handwriting of the person who received the cash 4

5 Other Common Red Flags Excessive check voids in ledger. Checks that do not clear Missing checks (may indicate lax controls over physical check stock) Checks payable to employees Altered endorsements and dual endorsements Customer complaints about payments not being applied correctly All questionable payees and payee address should trigger a review of the corresponding check and supporting documentation Other Common Red Flags Domination of management by a single person or a small group without compensating controls Ineffective communication, implementation, support, or enforcement of the entity's values or ethical standards by management, or the communication of inappropriate values or ethical standards. Recurring attempts by management to justify marginal or inappropriate accounting on the basis of materiality. 5

6 Other Common Red Flags Formal or informal restrictions on the auditor that inappropriately limits access to people, information, or limits the ability of the auditor to communicate effectively with those charged with governance Managers who are evasive in response to audit questions Management displays disrespect for regulatory bodies or rules Inexperience or lax behavior in accounting personnel Management is inexperienced Fraud & Theft Fraud An intentional perversion of the truth for the purpose of inducing another in reliance upon it to part with some valuable thing (Black s Law Dictionary, 1990) Theft The taking of property without the owners consent with the intent to deprive the owner of the value of the same (Black s Law Dictionary, 1990) 6

7 Criminal Acts Must be statutorily prohibited Must meet each element included in the statute Culpable mental state is an element Each element must be proven beyond a reasonable doubt Much of the interpretation of this is subjective Information, Evidence, & Proof Information Knowledge obtained from investigation, study, or instruction Evidence Evidence amounts to the information that can be put in front of a trier of fact for use in determining what occurred in the case that has been presented to them Evidence supports a conclusion Proof Proof is derived from evidence and is subjective. 7

8 Criminal Investigations Must be conducted separately from administrative and civil investigations Criminal investigators cannot direct administrative and civil investigators in furtherance of a criminal investigation Information flow is often one direction Confessions For confessions to be admissible Made freely without coercion Recorded properly (CCP 38.22) Be supported by other evidence 8

9 Response to Red Flags Do not report Investigate more Report to management Report to law enforcement Report to prosecutors Report to the media 9