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The End of the Trail
By Scott Morantz, CPA and Colin May, CFE
Introduction
About Myself
About SC&H
About Colin and Stevenson
The End of the Trail By Scott Morantz, CPA and Colin May, CFE - - PowerPoint PPT Presentation
The End of the Trail By Scott Morantz, CPA and Colin May, CFE - - PowerPoint PPT Presentation
The End of the Trail By Scott Morantz, CPA and Colin May, CFE Introduction About Myself About SC&H About Colin and Stevenson Writing the Article Assignment from Professor Mays class Requirements of the
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Writing the Article
Assignment from Professor May’s class
Requirements of the assignment
Conducting Research
Validity of sources Pacer.gov
Incorporating Personal Style
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Description of the Case
Who was the perpetrator
When it occurred
Total Amount Stolen
Why did it take so long for the arrest?
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Crime Statistics
Fraudster Profile
Majority White Males 31-45 Majority with company >5 years
How fraud is discovered
“Tips are by far the most common way that occupational fraud schemes are
detected” – about 40-43%
Internal audits about 14% External audits only about 3-4%
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How He was Found
CNBC released a special on American Greed
Hiker watched the special and identified him on the trail
https://youtu.be/QDoYgjYzToQ
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Before and After
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Fraud Triangle
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About the Fraud Scheme(s)
Hired as controller in 1995
Access to all bank accounts
No crimes of record until 1998
Payable account for false vendor
False vendor already had account – Red flag
Created bank account in false vendor’s name
Used Personal address and name on fake account – Red flag
Supervised AP by reviewing invoices and approving payments (Opportunity)
Bring check requests to AP clerk with no support
AP clerk did not question the validity (Lack of internal controls)
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About the Fraud Scheme(s) – Cont’d.
Used Misc. acct to write off fraudulent checks
“Cook the books” to offset check amounts (specifics are unknown)
Manipulated monthly acctg reports (likely kept 2 sets of books)
Deposited fraudulent checks into false vendor acct
Signed fraudulent checks with his own signature
Transferred funds to 2 personal bank accounts
TD Ameritrade ($500k was seized)
Fifth-Third Bank ($200k was seized)
$8.7M embezzled over 11+ Years
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About the Fraud Scheme(s) – Cont’d.
Charged with 38 counts of wire fraud
Charged with 36 counts of money laundering
ACH withdrawals from false vendor acct to personal accts
Moving money across state lines
Only charged for 1 count of wire fraud, all other charges dropped
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How he was Originally Discovered (2009)
2/19/2009 – internal audit conducted by employer
Internal review showed $4.6M was missing, dating back to 2005
Internal Auditors informed the FBI
Hammes last wired funds on 2/18/2009
FBI interviewed Hammes on 2/23/2009
Exact contents of interview have never been released
Arrest warrant was issued on 3/3/2009
Hammes was nowhere to be found
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Lessons in Fraud Prevention and Detection
Key Reason Scheme was successful: Weakness in Internal Controls
Access to Purchasing, authorizing, receiving and payment Reason most false billing schemes are successful Able to create new vendors, review invoices, authorize payments (Opportunity)
Important to speak up and question when lack of supporting documents
No employee questioned the check requests without support Even if it means questioning a superior If you suspect superior, report around them
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Lessons in Fraud Prevention and Detection – cont’d.
Review the vendor list regularly (at least annually)
Vendors with multiple accounts Multiple vendors with the same address Individuals as opposed to companies Vendors with address as a P
.O. Box
Reconcile Checks
Review the front and back Who endorsed the check? Into what Account?
Much easier to Prevent than to Detect Fraud
Need Strong Internal Controls
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Final Sentencing
6/22/16 – Hammes sentenced to 96 months (8 years) in prison
1 count of wire fraud (all other charges dropped)
Ordered to pay $7,680,259.17
Ordered to forfeit seized property
Full scope of crimes is unknown – filed under seal
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Quote from the Lawyers
At its essence, it was just stealing, a lot
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Key Takeaways
Final Tips for prevention and detection
Review vendor accounts on a regular basis If something looks unusual, question it Always ask for supporting documentation Always question why there is lack of support Do not be afraid to question superiors
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