Fraud Auditing, Detection, and Prevention Blog

Real Life Fraud Cases

As promised in last month’s blog, this blog is dedicated to real-life fraud. So, let me tell you about my research. I used one search phrase and limited myself to 30 minutes of research, copy & paste time. FYI, I intentionally selected various fraud schemes that occurred in different companies. After all, variety is the spice of life!

1. Shoe Company

2. From at least 2011 through October 2019, when he was terminated by Alden Shoe Co., former Chief Financial Officer Richard Hajjar embezzled money by writing checks to himself from company bank accounts and transferring funds from company accounts to his personal accounts and to another individual. In total, Hajjar embezzled approximately $30 million which he used to enrich himself and to buy gifts and luxury travel for others close to him, including private flights to the Caribbean and diamond jewelry. Source: Dept. of Justice

3. Snack Food Manufacturer

4. The snack food manufacturer, Utz Quality Food, Inc. hit the news after discovering a $1.4 million fraud scam perpetrated by a former employee and vendor. The fraudsters worked as partners over a period of several years and forged over 120 fake invoices and purchase orders for products and services that were never received. Source: Gross Mendelsohn Blog

   Automobile Dealer 

1. Cecile Nhung Campbell, an accountant at Kia Motors in Irvine, CA, was short on cash and decided to abuse her employer’s lack of anti-fraud protocols. She set up a phony out-of-state company and sent bills to her employer totaling over $1M, which was deposited into Cecile’s shared bank account with her husband. When Cecile’s misconduct was uncovered, Kia Motors pursued criminal charges, and she was sentenced to six years in prison. Her husband was sentenced to four years for his part as an accomplice. Source: AppZen Web Site
2.  

3. Health Care 

4. The Department of Justice (DOJ) indicted 10 people, including a Miami-based hospital executive, in connection with a pass-through billing scheme that used rural hospitals as shells to submit fraudulent bills for lab tests. According to the indictment, Perez and his co-conspirators purposefully sought out struggling rural hospitals and would take them over to further the scheme. They would then bill private payers for pricey urinalysis drug tests and blood tests. The billing companies were also often controlled by the co-conspirators, DOJ said. The hospitals would negotiate for higher reimbursement rates from health plans, according to the indictment. The tests were often not medically necessary, and the co-conspirators would obtain samples by paying kickbacks to recruiters and providers, frequently sober homes or substance abuse treatment facilities. Source DOJ

5. External Fraudsters

6. Unsurprisingly, experts have pointed to the COVID-19 crisis as a key factor behind the rise in a scam that involves fraudsters stealing company credentials, posing as legitimate vendors or submitting fraudulent invoices in an effort to infiltrate companies' accounts payable departments and reroute supplier payments into criminal bank accounts. Source PYMTS.COM

     Online Retailer

1. In a case that highlights how anybody — truly, anybody — can be a victim of invoice fraud, federal officials have reportedly charged two brothers in New York State for an alleged $19 million scam targeting Amazon. The eCommerce conglomerate issued a press release late last week announcing its cooperation in the investigation and prosecution of the individuals charged by the United States Attorney's Office for the Southern District of New York. The allegations, outlined in a separate announcement by the District Attorney's Office, claim the brothers "manipulated" Amazon's vendor system to have the company pay for goods Amazon never actually purchased. In a statement, Acting Manhattan USA Attorney A. Strauss described the scam as "a new twist on an old trick" through the use of "complex technology." Source DOJ.

   Tech Giants

2. Using imitation email addresses, Lithuanian national Evaldas Rimasauskas successfully defrauded US tech giants Facebook and Google out of a total $122 Million Dollars. Rimasauskas did this by sending fake invoices that were disguised as coming from a common supplier, Quanta Computer Inc, based in Thailand. This demonstrates that even the largest corporations can be conned by a committed fraudster. Source: Xelix

     Government Relief Programs

1. When the coronavirus pandemic hit the United States in 2020, three Florida men allegedly initiated a fraud scheme using existing shell companies from an email compromise scheme, as well as newly created shell companies. The defendants allegedly submitted false and fraudulent loan applications under two U.S. government relief programs authorized by the CARES Act to help small businesses and their employees survive the Covid-19 economic crisis: the Paycheck Protection Program (“PPP”) and the Economic Injury Disaster Loan Program (“EIDL”).  In June and July 2020, through false submissions in the names of their shell companies, defendants fraudulently applied for and received close to $2 million in PPP and EIDL funds, according to the affidavit.  Source DOJ

   Media Company

   Late last year, the Manhattan District Attorney's office charged former Turner Construction and Bloomberg executives with various fraud-related offenses in connection with the renovation of Bloomberg's New York City offices. Prosecutors allege that those individuals, with the assistance of subcontractors and vendors, tried to steal $15 million from the financial media company through fake invoices and work orders, inflated bids, and misappropriated subcontractor allowances built into the budget but left unused. This took place despite extensive controls and codes of behavior that both companies had in place.  Source Construction Dive

2. Aircraft Maintenance

1. A California-based company aided a bribery scheme by BizJet, a unit of Lufthansa Group AG, prosecutors said. The shell, owned by a man indicted in the case, operated under the pretense of providing aircraft maintenance brokerage services but actually laundered money related to the bribery scheme, prosecutors alleged when BizJet’s ex-CEO pleaded guilty. Source: Wall Street Journal

What Does My Research Teach Us?

• Can you imagine what I could find if I took all day?
• Fraud happens in both big and small companies, public and private.
• Fraud is committed by both external people and internal people.
• Avoid internal control blindness! This is when the auditor says, ah-hah, we have the three-way match so fraud risk is mitigated to a low level. I do not need to look!
• There is a big difference between the design of an internal control and how it operates in real life.
• Professional skepticism is being aware of the opportunity of fraud even when our internal controls tell us otherwise.

Next Month’s Trivia Question for the true-blue forensic accountant.

In the movie “The Accountant”, as the protagonist solves the financial statement fraud scheme, what real-life financial statement fraud did the Accountant sketch out on the glass walls of the conference room? Hint: Think the 1980’s.

In what non-fraud movie was there a critical scene that was reflective of Fraud Data Mining? (Hint: Based on the life of an American mathematician.)

Till next month!