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 May’s class Requirements of the assignment Conducting Research Validity of sources Pacer.gov Incorporating Personal Style
Description of the Case Who was the perpetrator When it occurred Total Amount Stolen Why did it take so long for the arrest?
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%
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
Before and After
Fraud Triangle
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)
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
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
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
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
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
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
Quote from the Lawyers At its essence, it was just stealing, a lot
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
Contact Information
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