Thursday, October 13, 2016

Another Credit Card Embezzlement Scheme

Just a week ago, we reported on a case where a highly trusted contractor employee embezzled $825 thousand from his company by using a company issued credit card for personal expenses. Now we have another misuse of company credit card case being reported by the Department of Justice. This time, the perpetrator made $1.3 million in unauthorized personal charges to a company credit card. He has pleaded guilty and has agreed to pay restitution and when he appears for sentencing, faces additional fines and possibly prison time. This time however, the perpetrator was not someone in a trusted position in the company - he was a lowly accountant who got away with the embezzlement for four years. Cases like these should really be wake up calls for companies to examine their own company-issued credit card policies and related internal controls. As we all know, "trust" is not an internal control.

In the most recent case (you can read DoJ's press release here), Mr. Bell got a job in the accounting department at Phoenix in 2008. Phoenix is a non-profit firm providing counseling for and placing people with disabilities in administrative, manufacturing, and custodial positions. One of Phoenix's Government contracts was valued at $20 per year providing custodial services at Redstone Arsenal. A year later, Bell began using a company-issued credit card for personal expenses until he was caught in 2013. By that time, he had racked up $1.3 million in personal expenses including nearly $100 thousand to Best Buy, $70 thousand to airlines, $70 thousand to hotels, and many other luxury goods and department stores. We wonder why no one ratted him out for living well beyond his apparent means in an accounting job.

We're not quite sure how Bell covered his tracks - the DoJ press release didn't go into a lot of detail concerning the cover-up. "Bell deleted unauthorized purchases from the credit care monthly statements and manipulated Phoenix's account ledgers so that they would balance with the bank's spreadsheet that showed what Phoenix owed for its staff credit cards." The only way for this balancing act to have worked is if Bell increased the expenses related to other "legitimate" charges equal to the amounts he deleted for personal expenses.

Along the way, Bell became more emboldened. He set up his own accounting firm and invoiced Phoenix for $300 thousand in accounting services never provided. Bell never reported this income either and now has IRS problems.

The press release did not divulge how the embezzlement was discovered. Eventually, these embezzlement schemes are exposed even if it takes 15 years like one case in Washington State. The most basic control a company can implement in credit card programs is to ensure that staff responsible for reviewing and processing credit card transactions, does not themselves, have company-issued credit cards.

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