What have all the Ethics gone? Seems that Fraud is rampant! Business Ethics expert Chuck Gallagher comments

December 21, 2009

All too often I’m asked, especially as we review this past year on the anniversary month of the disclosure of Bernie Madoff’s fraud, whether fraud should decrease since we are more focused on ethics and ethical choices. Unfortunately, as I see it the answer is a resounding no!   Yet, the Ethics Resource Center in their new 2009 biennial National Business Ethics Survey reported a surprising conclusion:

We behave better in bad times.  “Contrary to what one might expect, misconduct declines in turbulent economic times and rises when the pressure’s off,” the report says.  When asked about specific abuses or ethical lapses – such as misusing company resources, lying to outside stakeholders or falsifying time or expenses – a smaller percentage of U.S. workers observed problems this year compared with the 2007 survey, taken before the recession began.  “Yet our research suggests that the improvements in ethical conduct will be temporary,” warned the ethics center’s CEO, Patricia Harned.

As I review ethics issues weekly I must say that I have a hard time believing in the validity of their survey.  Just look at these stories reported on here the first two weeks of this month.

Patricia Wilson, 57, of Draper, Virginia, has pleaded guilty to embezzling more than $167,000 from the Memorial Christian Church where she had served as the church bookkeeper for 9 years. Prosecutors alleged last April that Wilson diverted most of the monies from the Church’s building fund but also from it’s general fund.

Casey Jane Goebel, of Indio, California, was arrested last week for allegedly embezzling at least $250,000 from Hyde’s Air Conditioning where she had been employed as a bookkeeper. According to authorities, Goebel’s thefts ocurred between August 2007 and July 2009

Robin K. Ramey, 48, of Huntington, Ohio, pleaded guilty to charges she embezzled some $185,000 from the Huntington National Bank where she was a longtime employee, ultimately rising to the level of supervisor. Ramey caused at least 86 wire transfers in bank funds to be sent to her personal checking and saving accounts. If the plea agreement holds, Ramey will be ordered to spend two years in prison and repay the bank. She is scheduled to be sentenced on January 21, 2010.

Jessica Harmon, 32, of Lowell, Michigan, has been charged with embezzling more than $100,000 from a unnamed local law firm where she had been employed apparently in a bookkeeping position. The thefts reportedly occurred over a 3 year period. Specifically, Harmon faces charges of embezzlement of more than $20,000, uttering and publishing and using a computer to commit a crime. Harmon, who had been employed by the law firm for 10 years, allegedly made unauthorized withdrawals from firm accounts and wrote herself extra pay checks.

Capt. Michael Dung Nguyen, 28, of Beaverton, Oregon, pleaded guilty Monday to theft and money-laundering charges related to the theft of some $690,000 in cash intended for relief and reconstruction in Iraq. Nguyen was the U.S. Army battalion civil affairs officer in Muqdadiyah, Iraq and had been entrusted with cash designated for local commanders in Iraq and Afghanistan for urgent humanitarian relief and reconstruction. He was indicted last March on charges of theft of government property, structuring financial transactions and money laundering. The thefts occurred between April 2007 and February 2009, according to the indictment. He spend some of the money on luxury vehicles, among other personal items.

Three components come together when a fraud, like the ones reported above, take place.  NEED – OPPORTUNITY and RATIONALIZATION.  In the cases above – I cannot speak to the first and third component – Need and Rationalization, but in each case the fraudster exploited a weakness or put another way – found an OPPORTUNITY.

Patricia Wilson used her trusted position as church bookkeeper (9 years no less) to  exploit what was likely a weak system of internal controls for Memorial Christian Church.  Likewise, two other bookkeepers, Casey Jane Goebel and Jessica Harmon, used their positions of trust to embezzle funds from their employers.  Robin K. Ramey stated, related to her embezzlement, “Why it took so long is that (the bank) doesn’t usually check there.”  Finally, Capt. Michael Dung Nguyen had been entrusted with cash to benefit members of the US military.

What was common in each of the cases above – TRUST.  Did each of the fraudsters know better?  Sure they did!  Were they at one time ethical – I would guess so.  Yet, in each of their lives they made choices – choices that clearly reflect unethical behavior and consequences that are life changing that follow.

As a business ethics speaker, I often state to audiences – Every Choice Has A Consequence.

COMMENTS ARE ALWAYS WELCOME.  If you knew either of the individuals mentioned above – perhaps you’d be willing to share what motivated them to make the choices they made.

Banking Embezzlement! What Motivated Rebecca Dawn Long to Commit Fraud?

November 4, 2008

As I prepare to write this entry, I must start out by saying that I know exactly what Rebecca Dawn Long is going through here in 2008. I went through the same thing in 1990 and I know how painful the process can be. I, too, (not proud of this) embezzled money and had to expose myself – to my family, friends and the community I lived in – as a liar and a thief. The experience was humbling, terribly painful, and a turning point in my life. So, for those who read – my motivation is not in any way to tear down Ms. Long, but rather to explore – for the benefit of those who read – what motivates someone to commit a fraud and subsequently destroy a life (at least for a time).

First, let’s define fraud: “A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.”

According to the US Attorney’s office, Ms. Long, between December 2004 and September 2008, devised andistock_000002775172small executed a scheme to obtain money from The Peoples Bank of Ewing by establishing a line of credit under a fictitious name. After establishing the false credit line, Long allegedly withdrew $487,685.23.

The indictment also charges that Long created and faxed a fraudulent loan document to an office of The Peoples Bank for the purposes of disguising the fact that she had embezzled over $487,000 from that financial institution.

Assuming the indictment is true – that meets the definition of fraud. The broader question is motivation!

THE FRAUD TRIANGLE: Fraud arises when three elements exist simultaneously: (1) need or unsharable financial pressures; (2) Opportunity or perceived opportunity; and (3) Rationalization or the ability to convince yourself that what is wrong is right.

NEED: Need generally comes from an (a) excessive lifestyle; (b) gambling or drugs (in the case of men -perhaps women); (c) debt, poor credit, financial losses; or (d) pressure to succeed from family – job – peers or company. In my case, the need arose from (a) and (c) – too great a lifestyle and too much debt. For those who may know – in Rebecca’s case which was the motivating factor?

OPPORTUNITY: Here’s a fact – “Potential fraudsters who think they will get caught rarely commit crimes. Therefore, for those of us who have been catagorized as “fraudsters” – the opportunity most likely was poor or insufficient internal controls. Now I doubt that the bank will admit to their role in the fraud scheme, but insufficient internal controls creates “opportunity.” More important was what loophole did Rebecca choose to effect the crime she is charged with?

RATIONALIZATION: In order to break past the ethical boundaries of right and wrong, most fraudsters justify their questionable conduct as something other than fraud. Here are some examples of what might be used as rationalization: (1) I was only borrowing the money, I intended to pay it back; (2) I work hard and they don’t pay me enough here, so this is just what I deserve; (3) It’s no big deal, everybody does it; and (4) I have no choice, it either I do this or I lose my house, etc.

QUESTION: While the above data is general, the question is what motivated Ms. Long to take the actions she took. She is innocent until proven guilty, however, in my experience, the US Attorney’s office does not indict someone unless they feel they will secure a conviction. What was Ms. Long’s need? What loophole in bank procedures did she take advantage of in order to access that sum of money? What was Ms. Long’s rationalization?

COMMENTS ARE WELCOME…might I suggest however, that we focus on the issue and allow Ms. Long and her family the opportunity to heal. No personal attacks will be approved.

Virginia Banker – Rebecca Dawn Long – Charged with Embezzlement. Hard Economic Times Means More Fraud on the Way!

November 1, 2008

I suppose it will become a sign of the times – the economic times that is, but fraud will rise over the course of the next several years as we begin to see the “perfect storm” unleash its fury.  As the need to survive increases – or at least maintain as some see it – the inclination to find means to “have” will tempt otherwise honest people to make choices that will have far reaching consequences.  Fraud is being uncovered at increasing rates and, in my opinion, will only get worse.  Ethical choices are thrown out of the window when faced with severe need.

Facing a federal indictment, a southwest Virginia woman – 35-year-old Rebecca Dawn Long of Jonesville – has been indicted on federal charges that she embezzled nearly $488,000 from the bank where she worked.

HOW:  In Ms. Long’s case, she used “opportunity” as her method to create the fraud.  She is accused of falsifying loan documents.  According to the indictment she established a line of credit under a fictitious name.

According to the indictment, between December 2004 and September 2008 Long devised and executed a scheme to obtain money from The Peoples Bank of Ewing by establishing a line of credit under a fictitious name. After establishing the false credit line, Long allegedly withdrew $487,685.23.

The indictment also charges that Long created and faxed a fraudulent loan document to an office of The Peoples Bank for the purposes of disguising the fact that she had embezzled over $487,000 from that financial institution.

POINT OF INTEREST:  In many of the current mortgage fraud cases, falsification of loan documents is common and, has in the past, almost been encouraged in order to meet the qualification standards from the loan underwriters.  Underwriting standards have tightened significantly, but that does not stop the practice.

U.S. Attorney Julia Dudley said Tuesday that a grand jury in Abingdon indicted  on charges that included bank fraud, bank embezzlement, money laundering and making a false statement on a loan document. She faces a maximum penalty of 120 years in prison and a $3 million fine if convicted.

QUESTION:  Does anyone know Ms. Long and what might have motivated her to make such a foolish choice?  If so, please feel free to comment.

Every choice has a consequence.  In this case, Ms. Long is at the beginning of the phase of facing her consequences.  I know what she is facing.  I have faced it myself.  While I am not proud of my past, I have to be honest as an ethics speaker and writer – I, too, spent time in federal prison for embezzlement.  The experience was less than pleasant and the consquences linger to this day…and I have been out for 12 years.

While Ms. Long has made a grave mistake, as a wise man once said to me – You are not a mistake.  Neither is Ms. Long.  To all who seek justice…Ms. Long will stare justice in the face and likely face time of reflection in federal prison.  However, to her family and friends, let me say, my thoughts are with you and I know that with the right approach there is recovery after an event like this.

Business Ethics and Embezzlement – Heather Lott Pleads Guilty – What Went Wrong?

April 7, 2008

Monday…Monday. While the song from the Mama’s and the Papa’s was good – it wasn’t so good for Heather Lott, the former bookkeeper for Local 19 of the International Brotherhood of Teamsters. Lott plead guilty to embezzling more than $140,000 in union funds.

As the bookkeeper of Local 19 from January 2003 through January 2006, Lott’s duties including paying bills and maintaining the financial records. According to the US Attorney’s news release, the treasurer of Local 19 first discovered improprieties in the union’s accounting during his 2005 year-end audit. He noticed more than 12 database entries during 2005 were designated as rent payments for the union hall even though the union only paid rent on a monthly basis. The lessor of the union hall stated he had received only 12 payments from the union that year. The treasurer was unable to find all the cancelled checks for the supposed rent payments in the union’s financial records and subsequently obtained the cancelled checks from the bank supposedly for rent that were missing from the union’s files. All these missing checks listed Lott as the payee and endorser.

Now how dumb is that? Lott steals money from her employer and then gives the auditor – as proof of here excuse for the missing money – checks made out to her?

After this discovery, the Teamster’s International

Union sent two auditors to examine the Local’s records who discovered 91 cancelled checks missing from the Local’s records. According to the database entries, all of these 91 checks were paid to vendors the Local used. However, after the cancelled checks were obtained from the bank, all 91 checks, totaling $135,974.53, listed Lott as the payee and endorser. The subsequent Department of Labor investigation found five additional checks made out to Lott for $4,977.72, bringing the total amount embezzled to $140,952.25. Bank records show the vast majority of the 96 checks were deposited to Lott’s personal account and that she spent the money on personal items.

When there is a lapse of business ethics and integrity – often potential white collar crime follows. In this case Heather Lott was a dumb criminal. Not only did she steal money, but she was lame in the crime as she only disguised the defalcation through accounting entries. All the checks that were written and cashed created the perfect paper trail for the auditors to follow.

Every choice has a consequence. Lott‘s choices will likely result in a prison sentence, restitution and potentially an IRS claim for tax fraud as I doubt that she paid tax on the embezzled funds. Yes! Tax is due on money from all sources except those that are exempt and stolen money is taxable. I should know – I spent time in federal prison for not paying tax on stolen money. By the way, I am not proud of that fact, but today, I speak nationwide on (1) fraud in business, (2) how to avoid fraud in your company and (3) how business ethics can improve your financial performance.

One thing is for sure – You do reap what you sow! Heather Lott will come to learn that soon as she is scheduled to be sentenced on July 7, 2008.

If you know Heather Lott and have any comments on her and/or the crime committed here – feel free to comment!

Employee Embezzles From Police Guild – That Qualifies As Dumb and Dumber Says Business Ethics Speaker Chuck Gallagher

January 18, 2008

By age 37 most of us have moved past that stage in life where we make really “stupid” choices. That was not the case for Tara Mullins, of Renton, Washington. On January 15th, 2008 she pled guilty to embezzlement from an Employee Benefit Plan. Seems that Mullins worked as a bookkeeper for the Seattle Police Officers Guild.

Yes, she worked for the Police Officers Guild – the same place she embezzled money from. Now was that dumb or dumber?

MULLINS admits she embezzled $41,733 from guild funds, some of which were to be used to pay for employee benefits. According to the news release from the Western District of Washington:

MULLINS provided the government with a check for $77,492 in restitution which represents not only the money she embezzled, but the additional costs to the Seattle Police Officers Guild to audit the books, correct errors and defend against MULLINS’ legal claims following her firing. According to the plea agreement, MULLINS admits that she prepared fraudulent checks and deposited them into her personal bank accounts. MULLINS admits she forged the signature of a Guild officer on the forged checks. As part of the scheme MULLINS also transferred funds from Guild accounts to her own PayPal account for her personal use.

Chuck Gallagher - The Ethics Expert

As a business ethics speaker, http://www.chuckgallagher.com, I speak to groups routinely about the effects of choices and consequences. (see YouTube Demo Video)   Every choice has a consequence. The choice she made to embezzle will continue to have consequences especially since her sentencing hearing is set for April 18, 2008. She faces up to five years in prison and a potential $250,000 fine.

Now in fairness, Mullins has made a good choice in making restitution for not only her theft but the costs associated with the investigation. That should carry some weight when the judge issues the sentence. But, considering the sentencing guidelines, I would suspect that the judge will order some prison time.

Let’s hope that Mullins learns from her experience and makes more effective choices in the future. For sure, this will be a growing experience.