Review-paper

Teaching Notes

Background Reading: The ACFE Code of Ethics is included as an exhibit in this case, the instructor may wish to further familiarize themselves with the ACFE by visiting the association website at www.acfe.com.

It would be well for the instructor to familiarize the class with the Cressey Fraud Triangle and how it relates to the inclination of an otherwise law-abiding citizen to commit fraud. Some information is included in an exhibit to this case, more information can be obtained at the ACFE website. Many well thought out papers have been presented on the Cressey Fraud Triangle and can be researched.

Investigation details and techniques.

To complete the investigation Campbell performed a variety of investigative actions. Having identified the cash appropriation scheme, he interviewed his client about how cash was handled at the business. This eliminated all employees who had no opportunity as they had no access to the cash. Of the remaining employees Campbell was able to eliminate many of the remaining based on a review of the business records which, if properly examined did show the cash receipts as being recorded in gross sales, the money was being removed prior to deposit. This left only the office manager who prepared the deposits as a suspect. A brief review or the office video security system, an examination of the vacation records of the office manager and a few well-crafted questions revealed the daughter was making the actual deposits at the bank and in many cases also filling out the deposit slips.

Eventually things went downhill and the Cressey Fraud Triangle came into play, she had a perceived opportunity, the weakness in the internal controls as no one was checking up on her, she had the ability to change the deposit slips and substitute information submitted to the bookkeeper as well as intercept any items which may come in the mail. In order to gain additional documentation Campbell conducted surveillance of the daughter when she went to make the deposit. Prior to going to the bank Campbell observed her to meet with an individual and recognized the signs of a drug buy. This gave Campbell the pressure side of the fraud triangle, in the form of an unsharable financial burden to supply motivation. Unknown to Mac Stanley, his daughter had developed a drug habit. Later during an admission seeking interview Campbell would establish the final leg of the fraud triangle rationalization. Her rationalization was that “well this is my family’s money anyway, Dad had always given me whatever I ask for.”

What happened next, how was the case resolved?

The next day Campbell phoned the client and invited him to meet for lunch. Campbell made arrangement with a restaurant owned by a business acquaintance, to be given a private room. He also invited the client’s business attorney and a criminal defense attorney who owed Campbell a favor.

It goes without saying that no one in the room enjoyed his lunch. But, by involving the attorneys, who did have professional privilege, Campbell was thereby protected by the work product expansion to the attorney-client privilege. His work was considered part of the legal work of the attorneys the business attorney to protect the business interests of the client, the other attorney to provide criminal defense legal counsel to the client and eventually his daughter.

The daughter was the subject of an admission seeking interview conducted by Campbell with the presence of the criminal defense attorney. When confronted with the evidence the subject made a full and complete confession and signed a written statement. In addition she acknowledged her drug addiction and the effect it had upon this investigation. The fraud scheme had been going for approximately 30 months. It had begun about the time the daughter had received her driver’s license and co-incidentally began using alcohol and marijuana which served as a gateway to her later serious drug problem. The growth of her addiction also corresponded with the grown of the fraud scheme. By the time the fraud was detected the scheme had cost the business almost $200,000.00. This statement along with the documentation developed by Campbell as presented to the District Attorney’s office by the criminal defense attorney with the purpose of obtaining a plea agreement and reduced sentence. The daughter was arrested, charged and confined to a rehabilitation center for treatment, while a plea agreement, was to be worked out. This plea agreement was to include pre-trial diversion so as to provide an incentive for the daughter to successfully complete rehabilitation therapy and to thereby eliminate a felony conviction appearing on her record. No claim was filed with the insurance company the business owner wrote off the loss and his business was able to recover.

In reality this case does not have a happy ending. When the investigation began the business owner was a morbidly obese man, with high blood pressure, diabetes, and a heart condition, Before a plea agreement could be reached and the criminal case completed, he suffered a fatal massive heart attack. In addition the daughter who had been placed in the custody of a drug rehabilitation facility managed to escape custody while attending her father’s funeral. She returned to her drug habit and was found dead of an overdose three days later.

Campbell has continued his profession as a forensic financial investigator, but now he only accepts investigations in which an attorney is the client, thereby protecting his professional stature under the work-product addition to the attorney client privilege.

The Cressey Fraud Triangle

The relevance of the Cressey Fraud Triangle has been well established in the literature since Cressey first published his theory in 1953. A considerable amount of research has been done in the intervening six decades.

Pressure

· Unshareable Economic Burden

· A sufficiently high level of financial pressure can induce an otherwise-honest person to commit a crime.

Opportunity

· An employee who is under one of these unshareable financial burdens may find a weakness in the internal financial controls in the business which they can exploit.

· If an employee recognizes such an opportunity he or she may give in to the pressure to exploit this weakness.

· People who think they will be detected rarely commit fraud.

Rationalization

· A person must be able to justify their actions (committing embezzlement) in order to make these fraudulent actions consistent with his or her own personal code of conduct.

Cressey, Donald R., Other people's money; a study of the social psychology of embezzlement. New York, NY, US: Free Press Other people's money; a study of the social psychology of embezzlement.(1953).

Campbell, Keith B., Embezzlement, Causes, Detection and Prevention. Presentation to 2015 Fall PPG MVP Business Solutions Conference. (22 September 2015)