Lee has some amazing fraud stories that never cease to crack me up. To emphasize his consistent advice to watch the back door and other openings for theft, I want to share that store of the most interesting fraud I’ve ever uncovered.
A General Feeling of Unease
I was working at a company at which we needed to replace the retiring finance director of our English subsidiary. It was a small company with about a dozen employees.
Our auditing firm recommended an experienced finance executive from one of their other clients. He was well-regarded, active in his church, married with two children and had a stable work history and good references. The interview went well, and he spent a few days with our retiring finance director to get acclimated to our business.
Over the next few months, the managing director (MD) mentioned some specific minor problems to me regarding the parent company’s CFO, as well as a general feeling of unease. I investigated the specific problems on my next quarterly trip and confirmed that there was something just a little bit off. I reiterated our policies and requirements with the new hire, and the MD and I agreed to watch our new finance director closely over the next few months.
Champagne’s On Us!
Our new guy took a long weekend the next week, and his phone calls were covered by our receptionist. When she got a call from a liquor store asking about payment for a case of champagne, she went to the MD and asked what was going on. (The company was running on the ragged edge of profitability and had reduced spending significantly in the past year. Thus, cash was at the top of every conversation I had with the MD, and we were not buying champagne.)
On his return, the finance director told the MD that he had bought the champagne through the company so he could avoid VAT. The MD told him to reimburse the company the full amount, including VAT, and to go home pending further notice. The MD called me and we scoped out an investigation plan for him to start while I flew to England.
Sophisticated Theft for Sophisticated Parts
In addition to trying to get the company to pay for a case of champagne, we found that he had paid personal bills with company funds (charging inactive vendor balances) and even directed a customer to pay the balance they owed to his personal American Express bill.
Our criminal finance director picked his targets very carefully: inactive accounts, unsophisticated customers, etc. In total, he stole about ₤20,000 in less than three months.
We had him arrested and pursued through the courts for theft and other charges. Upon his conviction, the judge was about to send him to jail for several years when suddenly his lawyer provided doctors’ notes specifying that his client had stolen from us in order to pay his out-of-pocket costs for a sex change operation.
While National Health Service paid most of the costs of the operation, our finance executive needed money to set up a household separate from his wife and children.
Mercifully, the judge ordered merely restitution (which would take about 50 years, without interest) – and no jail.
We didn’t even get the champagne.
Ever seen any strange cases of theft or fraud? Care to share in the comments below?
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