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warrant for the controller’s bank account and an arrest warrant for larceny charges. The detective said he was applying for them simul- taneously, and if evidence came out of the information in his bank accounts based on the search warrant indicating the controller had committed other crimes, that he would apply for a second arrest warrant and arrest him for that as well. The detective said in the meantime there was no reason to delay the controller’s arrest for the known items, and get things started.

I asked the detective where things stood with the office manager. The detective said he discussed the office manager and his role in the scheme with his supervisors and the prosecutor, and neither had much of an interest in pursuing the office manager without clear and convincing evidence that he benefited from any crimes. He said the consensus was for the organization to pursue the office manager civilly for breach of fiduciary duty, but that insufficient evidence existed to present a clear and convincing case beyond a reasonable doubt that the office manager had participated in the thefts by the controller. Disappointed but understanding, as that determination was not uncommon, I asked the detective if he would at least interview the office manager to see what information he could provide, as well as put additional stress onto the office manager. The detective said he had already left messages for the office manager to call and set up a time to come in and discuss the matter, but that the office manager had yet to return any of the messages.

LEARNING POINT Unfortunately, if law enforcement and the prosecutor’s office decline a case, that may be the end of the road for the victim. This is especially true if the insurance coverage has been exceeded, and the targeted individual holds no assets or means for restitution. Pursuing the target through a civil lawsuit will cause the victim organization to incur costs in professional fees, and even if a judgment is received favorable to the victim organization, the chances of collecting from the individual on the judgment are poor at best.

Once a criminal case is off the table, and the diverted funds and costs from the insurance and/or the individual are not available for recovery, or the individual is not likely to yield any restitution, there may be no other means of recovery. The victim organization may have

(Continued )

Working Toward a Resolution (''I Don't Want to Go to Prison'') 173

I called Tim and provided him with an update. Disappointed as I was, Tim thought the office manager should be arrested along with the controller. I suggested we have a conference call with counsel, and bring them up to speed on where things were as far as the criminal aspect. Tim agreed, and he was successful in getting counsel onto our call.IprovidedasimilarsummarytocounselasIhaddone forTim,and indicated that a decision needed to be made regarding the office manager. I suggested that we end the employment of the office manager, and decide either to pursue the office manager civilly for damages due to his breach of fiduciary duty to the organization, or to simply ‘‘close the barn door’’ with him and move forward. We dis- cussed the pros and cons of both avenues, and given the fact that he lived at home, drove around in his parents’ cars, and appeared to have little or nothing as far as recoverable assets that we could attach, we decided tosimplyterminate himand move on.Weallknewthathe very likely had schemes occurring and stole from the organization, but the deciding factor was whether it made sense to continue paying pro- fessionals’ hourly rates to successfully obtain a judgment against the office manager, only to have no means of collecting on the judgment. We all knew it was the right decision for the organization based on the known facts, but letting the office manager off the hook and allowing him to walk away from all this just didn’t seem right. Tim said he would speak with the human resource director, and share with her our deci- sion to terminate him, and that he should be terminated as of today. With that we closed the book on the office manager.

! ! !

While I had Tim and counsel on the phone, I asked about the status of the woman who had used the credit card for personal purposes. Counsel said that they had met with her along with the human resource director, and that the woman established a plan to pay the organization back for the charges. Counsel said the woman signed an agreement to repay the funds, and that the repayments were being withheld from her paycheck. Tim said the agreement brought to an end any further actions against the woman.

I asked if Tim or counsel had heard anything from the control- ler’s attorney regarding the information he said they would provide. Counsel said a letter went out to the controller’s attorney requesting the promised information, but that nothing had been received, and

Working Toward a Resolution (''I Don't Want to Go to Prison'') 175

no response was provided. We agreed it was likely that nothing would ever be provided, as nothing likely existed that could legitimize the charges and activity. Counsel said if in fact the receipts and invoices did exist and showed the purchases were personal in nature, they would never be produced, as their production by the controller would only further implicate the controller.

Lastly, I asked about the status of the insurance claim. Tim said he followed up the claim with a voice message to the claims adjuster assigned to the claim. Tim said he hadn’t heard back from the adjuster. I indicated he needed to stay on top of the adjuster to get the claim processed and paid, or it would sit until they got around to paying out on the claim. I said these claims are the types that you needed to call often about to keep the process moving, to ensure you receive your payment in a timely fashion. Tim said he would call again today and let me know the status of the claim.

Counsel thanked us for the update, and with that we ended the call.

176 Anatomy of a Fraud Investigation

13C H A P T E R WORKING TOWARD A RESOLUTION

("I DON'T WANT TO GO TO PRISON")

Tim finished describing to the detective the bank account and credit card activity and our findings. The detective seemed to follow along with the information that Tim was providing, taking notes throughout Tim’s explanation. Then the detective looked down at the copy of my report. I told the detective that the case from start to finish was described within my report, along with schedules identify- ing the activity and copies of the bank and credit card statements. The detective said he wanted to discuss each individual who worked at the division, one at a time, starting with the controller. The detective asked Tim the name and other demographic information about the controller. He provided the information while the detec- tive wrote it in his notebook. The detective then asked a lot of questions about the controller, his role and responsibilities at the division, and the activity on the credit card, as well as the bank account. When the detective asked how much was involved and for what period of time, I opened my report to the schedule that summarized the activity. The detective looked at my schedule, then said that we were dealing with first-degree larceny, a Class B felony in Connecticut, as the amount was in excess of $10,000. In fact, the alleged amount far exceeded the $10,000 threshold, the highest threshold for larceny in Connecticut.

After much discussion about the controller, the detective stated he had a good understanding of the controller’s role in this scheme. The detective said he was thinking along the lines of conducting his

167

criminal investigation with a goal of applying for an arrest warrant for larceny against the controller. The detective said he thought it would be very straightforward, and that based on his experience it would be unlikely that the controller would meet with him or provide him with a statement, especially since he had already appeared at one meeting with his defense attorney. We shared with him our experience meeting with the controller and his attorney, where nothing was accomplished. Tim indicated we were still waiting for the informa- tion they said they would provide. Neither Tim nor I expected to ever receive anything from them.

Next, the detective asked about the office manager. Tim pro- vided the office manager’s name and other demographic informa- tion. The detective asked Tim how the office manager fit into the scheme. Tim said that the account statements, credit card state- ments, and all other financial transactions were received, reviewed, and processed by the office manager, and that even if he didn’t personally benefit from the controller’s scheme, something neither Tim nor I believed, we did believe that the office manager had knowledge of what had transpired. In essence, the office manager had allowed the controller to carry out the scheme at the division without alerting anyone, a clear breach of his fiduciary duty to the organization. Tim said we both believed the office manager had his own schemes and was likely compensated or benefited in some way by the controller’s actions, but that to date we had been unable to identify any other schemes or otherwise show how the office man- ager directly benefited. Tim stopped short of disclosing the alleged ‘‘relationship’’ between the controller and office manager, some- thing I never acknowledged to Tim that I had learned, and had discussed only with the human resource director. I figured if no one bothered to share that potentially important information with me at the onset of the investigation, then I would keep that knowledge to myself. Also, I figured the human resource director had told Tim that I knew of the relationship based on my interviews. Tim never mentioned the relationship or my knowledge of it during any of our subsequent interactions.

As we discussed the office manager, the detective was as convinced as we were that the office manager was somehow involved in the controller’s scheme beyond just allowing it to occur. At a minimum, the detective said he would consider pursuing a conspiracy to commit larceny charge (aiding and abetting, if you will) against the office

168 Anatomy of a Fraud Investigation

manager. The detective said the controller would likely implicate others who were involved once he knew he was getting arrested, which was something Tim and I had discussed in an earlier meeting.

Next, the detective asked Tim about the woman who worked in the office. Tim provided her name and information, and stated that although she was an emotional train wreck, nothing had been found to date to show she had knowledge or was involved in any way with the actions of the controller. The detective continued writing notes in his notebook. The detective asked Tim what he wanted to have happen with the woman. Tim said he believed she wasn’t involved, and therefore was off our radar screen as far as being prosecuted for anything. The detective said that made his job a bit easier—fewer individuals on whom to focus his efforts.

The detective asked Tim about the woman who maintained a credit card. As with all the others, Tim provided her name and other pertinent information. Tim said that the woman admitted to using the division’s card for personal purchases, but that she did so with the full knowledge and approval of the controller. The detective asked Tim for the woman’s story. Tim said the woman was not credible, but that her consistent story was that she used the card to pay for personal expenses and prescriptions. I showed the detec- tive the analysis in my report, and showed him how the frequency of drugstore purchases was inconsistent with how most prescriptions are refilled (monthly, bi-weekly . . .). The detective asked Tim if he wanted to pursue criminal charges against the woman as well. Tim said it would likely be a difficult case to prove intent on her part if she acted with permission from the controller, the individual responsible for running the division and making the financial decisions, such as allowing the use of the card for personal purposes. Tim said that she would be pursued civilly for restitution of the funds that she was not entitled to, but that having her arrested was not a goal of the organization.

The detective asked if there was anyone else at the division that he should be aware of, either as a suspect or as a witness to the case. Tim and I had discussed the informant’s confidentiality prior to the meeting, and it was decided at that meeting that the informant would not be disclosed when meeting with the police. The police needed to be provided with the facts as we knew them to allow them to initiate a criminal investigation. How the information first came to light was not necessarily germane to their case.

Working Toward a Resolution (''I Don't Want to Go to Prison'') 169

Tim told the detective that there were others who worked at the division, but that no one else was identified as potentially being involved in the scheme. The detective asked Tim to name who they were for his notes. Tim provided him with their names and then asked the detective what would happen in the case.

The detective said he would be pursuing the criminal matter, and that he needed to conduct his investigation, focusing on specific violations of the law. The detective indicated that he would be contacting the controller, the office manager, and the woman from the office, to see if each individual would be willing to meet and provide a statement. The detective asked if he could keep a copy of my report, and Tim provided him with a copy for his file. The detective also said he would be applying for search warrants to the controller’s and office manager’s personal bank accounts, and if received, would share the records with us.

The detective asked where all the original information and the evidencewasbeingmaintained.Timindicatedthatalltheevidencehad been properly collected, marked, and preserved to establish a chain of custody, and that all the evidence continued to remain secured in a restricted storage room at his building. Tim asked if the evidence needed to be turned over for prosecution purposes. The detective said that as long as the evidence was being maintained in such fashion as to ensure a proper chain of custody, he didn’t need to take the originals today. He said he would discuss the case with his supervisors and the prosecutor, and basedonwhattheywanted to seehappen,he would be back in touch with Tim. He said if it was needed initially, he would

LEARNING POINT How information was first received in the matter needs to be considered, and specific laws exist protecting whistleblowers. Even if an individual providing the initial information or tip was not promised confidentiality and anonymity, care and consideration should be exercised with regard to the individual and disclosure of his or her identity. Legal counsel should be helping to decide whether an individual’s identity and the information he or she provided is ever disclosed.

If the case can be made on the evidence obtained without ever disclosing how the case came to light in the first place, that may be the best avenue to pursue, as we did in this case. In many of my cases the target never knew (or asked) how the case came to light.

170 Anatomy of a Fraud Investigation

collect it. Otherwise, he would work from the copies in my report and collect the original evidence later, if needed at all.

With that, the detective wrapped up our meeting, and walked us out to the lobby of the police station. We thanked him for his time, and left.

! ! !

Back at Tim’s office the insurance claim was returned from counsel with their input. For my review, Tim copied the claim, which we further discussed. Tim said he would copy the claim and supporting information, with the goal of filing the claim by the end of the day. The employee-dishonesty policy had a claim limit of $50,000 with a $1,000 deductible. The organization wouldn’t receive all its funds, but it was still $49,000 more than they would likely receive back from the controller. I asked Tim to send me a copy of the final claim he filed for my records, and with that I left Tim and returned to my office.

Back at my office I decided to organize my files for the case. I knew I would be waiting for the three parallel tracks to proceed, being the civil case, the criminal case, and the insurance claim. I also knew the insurance claim would likely be the first to get resolved, followed by the criminal and civil, in that order. It is also not uncommon for the criminal and civil cases to get resolved simultaneously.

LEARNING POINT There are at least two factions regarding how to proceed in pursuing restitution and resolution in these types of matters. The first faction pursues one avenue, such as a criminal case, at a time, with the hope that the results of the first means (e.g., a criminal case) will have a positive effect on the others (e.g., a civil matter). Therefore, they typically wait on the civil matter until the criminal matter is resolved.

The second faction pursues all options simultaneously, which was what happened in this case. A civil case was initiated at the same time a criminal case was launched and the insurance claim was filed. All three channels proceed concurrently, and the fact that criminal and/or civil cases have been initiated may actually help in getting the insurance claim paid. In some policies, a criminal case is required to get the claim paid.

(Continued )

Working Toward a Resolution (''I Don't Want to Go to Prison'') 171

Two weeks went by before I heard anything further on the case. I received a voice message from the detective asking me to call him. In his message, he stated that he wanted to go through a few things in my report for clarification purposes. I called and left him a voice message, starting the latest round of phone tag. I knew it was common for detectives to have variable work schedules, and given other crimes that were committed in their area, that days or weeks could go by before we ultimately connected. This round of phone tag ended just two days later when I heard back from the detective. It was close to the end of the day, and I was in my office when he called. He said he was working evenings, and had just started his shift (conveniently at the end of mine). He asked if I had time to review my report, as he wanted to clarify a few things that I had written. I told him I had time, and asked him to wait as I retrieved my copy of the report.

With my report now in front of me, I asked him what questions he had with my report. He referred to the exhibits and had me walk him through the information, asking questions about each exhibit. He indicated that he was in the process of writing the search warrant requests, and wanted to be sure he documented his under- standing consistently with my understanding of the facts. He said the prosecutor had asked him to keep the requests as simple as possible, using plain English easily understood by any reader, and to keep it as brief as possible.

I asked the detective where things stood with his investigation. He said that he had contacted the controller’s attorney, and that they had no interest in meeting except to learn what evidence the police had against the controller. The detective told them it was a meeting for the controller to tell his side of things and the controller’s attorney said the controller would not be making a statement. The detective said he was simply moving forward with a search

(Continued ) My attitude is why wait on any means of pursuing restitution and

justice, if those are goals of the victim? Locate and lock down any assets of the target you can before they are gone, as they may be the only means of collecting from the individual. Also, it is not uncommon for the civil and criminal matters to be resolved through one global settlement or agreement.

172 Anatomy of a Fraud Investigation