Real Life Fraud Examples - It Could Happen to You Too!
TRUST OFFICER FRAUD:
As a trust auditor earlier in my career, I experienced a classic situation where a trust officer was stealing money from a little old lady's trust account. He was able to get away with it for quite awhile with no real concerns; because the son and daughter of the little old lady (the designated beneficiaries who should have been reviewing the trust reports) were also abusing the little old lady's credit card accounts, and the trust officer paid off the balances each month with no questions asked. This established a "don't look, don't tell" environment between the son/daughter and the trust officer, at the expense of the little old lady.
Whenever the trust officer wanted/needed money, he would simply process a distribution request form from the trust account and deposit the resulting system trust check into his own bank account set up in another city. With no one really reviewing the activity in this trust, and no one questioning the extra withdrawals and large credit card expenses, all was well for the thieves. All the fraudulent transactions were sufficiently papered by the trust officer in the account files to avoid detection from any casual review.
The trust officer was even bold enough and confident enough in this scheme, that he completed a fraudulent withdrawal from the trust account during an internal audit of the whole trust department. AND, he used some of the funds to purchase designer baseball caps for the entire audit staff present during this internal audit (7 of us). We all accepted the hats without any suspicions, other than the more obvious attempt at influencing the audit results through "lobbying". Since receiving a gift hat is really not much different from a trust department buying the auditors lunch (a typical gesture), it was not considered to be such a big deal, right? I still keep that hat today, as a reminder to me of this fraud story.
The trust officer was eventually caught on this fraud scheme, but not as a result of the the internal audit. Some serious suspicions about the trust officer were raised by someone else within the trust department, and as a result, I participated with my supervisor at the time on the internal fraud investigation. Identifying all the fraudulent transtions in this case was not too difficult, once we were clued in with the co-worker tip (most common way fraud is detected). The out-of-norm distribution request forms and the excessive credit card balances for a lady living in a nursing home were not hard to spot.
The conclusion in this case, as in most fraud cases, is an example of insufficient review steps at some point along the money transfer process. In addition, there was an unwritten but understood collusive agreement in place between the trust officer and the two children, allowing the fraudulent distributions and the excess credit card expenses to go on longer than typical without management detection. Collusion makes fraud harder to find; but more so, a lack of adequate review makes fraud easier to commit.
The motive by the trust officer for committing fraud was his desire to maintain the lifestyle he had become accustomed to (big vacations, boating, fancy restaurants, etc.) while taking on the added expenses of putting two children through college. His income no longer supported both of these large money outlays, and he was "forced" to into committing fraud in order to save face with his family.
The rationale for committing the fraud was the trust officer being paid too low of a salary being for such a long time and good employee of the company.
The opportunity for committing the fraud was quite easy, being in a position as a trust officer. He was able to unilaterally process fraudulent distribution requests with only minor alterations/forgeries needed on the forms and for the support documents.
The fraud was not a huge amount, but still pretty big for the late 1980's; as the total bogus distributions amounted to somewhere near $36,000, plus the credit card abuses of around $10,000. The trust officer was fired, prosecuted, convicted, and sentenced to 8 years probation; with an agreement to pay back all the stolen money via his 401(k), and to never work in the trust business again.
This story was also my first up-close-and-personal exposure to the world of business fraud and deceit. Unfortunately, fraud and deceit is out there in many ways, shapes, and forms; and it is not going away anytime soon. However, from a positive perspective it is usually quite easy to mitigate most frauds from occurring. And it's usually worth every penny spent by removing the basic fraud temptations from employees (i.e. locking up blank check stock, diligently completing reconciliations and expense account reviews, locking doors and offices, using budgets, establishing policies & procedures, using standard transaction & approval forms, establishing basic separation of duties, etc.).