Several weeks later Tim called to tell me that he had just received the insurance check for $49,000 from the insurance company. He said he was happy another part of the puzzle had been completed, and that the matter was finally starting to wrap up. Tim said he was depositing the check into the division’s account today, and would send me a copy for my files. I told him I was glad things were starting to come to a close on the case, because the longer these cases drag on, the longer the eventsremainonyourmind.Iaskedhimifhehadheardanythingfrom the detective regarding the status of the arrest warrant. Tim said he hadn’t heard anything, but he would call and leave a message asking for an update. I askedhim where things stood withthe civil case against the controller. Tim said he had spoken with counsel earlier in the week, and that the case wasn’t doing much. A subpoena had been issued to the controller demanding copies of the invoices and receipts, the same information he and his attorney had promised to provide but never did, but no response had been received. Tim said the civil case wasn’t likely to gain ground until the criminal case heated up with the controller’s arrest. I told Tim I thought he was right with his assess- ment. I asked him to let me know if he heard anything, and congratu- lated him on recovering $49,000 for the division.


The next time I spoke with Tim, he called me to let me know he had just spoken with the detective, and that the controller had been arrested. I asked Tim if he knew what happened. Tim said while he had hoped the detective would go out to the controller’s house and arrest him, put him in handcuffs, and drag him down to the police station, all in front of his neighbors and other onlookers, it didn’t


happen in that fashion. Tim said it was actually quite uneventful. The detective told him he called the controller’s attorney to let him know he had an arrest warrant for the controller. The detective arranged an early morning time for the controller to come to the station to be arrested. On that morning the controller came in with his attorney to be arrested. The detective said once he was processed, the controller’s attorney posted the bail funds and they left the station. I told Tim I was disappointed as well and that I would have loved to have seen the controller marching up the front steps of the police station, handcuffed and surrounded by the media. I also told Tim that it almost never happens that way, unless the crime com- mitted is egregious in some way, especially for financial crimes. I asked Tim what happens next with the case. Tim said he already provided a similar update with counsel, and that counsel was going to communicate with the controller’s attorney to see if they now wanted to meet to resolve the civil matter. Tim said he hadn’t heard back from counsel, but would let me know as soon as he heard anything.

Within an hour I received a call from the detective. He said the controller came in and was arrested earlier, and then left with his attorney after posting bail. I played along as if I hadn’t already heard from Tim, and asked him what happened. The detective provided me with a similar story, and ended by asking me to keep the update between us. I agreed (and thought to myself, Tim likely agreed to something similar, although he already called me). I thanked the detective for calling, and asked if he knew when the next court date would be for the controller. The detective said he thought it would be around the end of the month, but wasn’t sure of the exact date. I told him to let me know if he needed anything further.

Within a day I heard from Tim. Tim said he sent me an e-mail with a link to a news article he had just read. I opened my e-mail and scanned my inbox for Tim’s e-mail. I opened it and clicked on the link. The following story appeared in the local paper:


James Smith, 43, was arrested yesterday on charges that he pilfered hundreds of

thousands of dollars from his employer over the course of several years. Smith turned

himself in to local authorities accompanied by his attorney after learning that police had

secured a warrant for his arrest. (Continued )

178 Anatomy of a Fraud Investigation

I asked Tim if he knew the case was going to be in the paper. Tim said he was contacted yesterday by a reporter asking about the case, but that he didn’t return the voice message. Tim said he suspected if a reporter was calling, that an article was likely to appear. I asked Tim if any other articles had appeared, and Tim said he searched all the newspapers and found no others.

I asked Tim if he knew anything about the initial return of $78,000 and restitution agreement cited in the article. Tim said he didn’t know about either, but knew that counsel had connected with the controller’s attorney to begin discussions in the matter. I asked Tim if he knew who provided the information to the reporter. I told Tim I didn’t know anything about any repayment arrangements or the article prior to his call, and that the only place the information could have come from was either counsel or the controller himself. I said I could see the controller saying things like that to mitigate and minimize the impact of the story, a self-serving statement if you will, perhaps to reduce the potential sentencing in criminal court if he showed the return of all the funds. Tim said he didn’t know either, but was confident it wouldn’t have come from counsel. Tim specu- lated if the information was provided by anyone, it would have come from the controller or his attorney.

Smith started at Crestview as an accounting manager and rose through the ranks to

become a controller. A surprise audit revealed Smith used the organization’s credit cards

for personal expenses in support of his lavish lifestyle, including trips he took throughout

the world. Funds intended for Crestview were diverted into a bank account opened by

Smith that he allegedly used to pay the credit card activity each month.

Shortly after the discovery, Smith was placed on administrative leave. As part of the

negotiations for a potential plea deal, Smith purportedly agreed to initially return $78,000

and make restitution to Crestview for the full amount of their loss.

Smith was released on a $100,000 bond and is scheduled to appear in court next

month on March 29th. No one answered the phone at Smith’s residence, and messages left

for his attorney went unreturned.

Case Closed! 179


The controller did appear in court on the 29th. It turned out the same reporter was at the court that day to snap a quick picture of the controller for the next article, should the outcome be newsworthy.

In advance of the controller’s court appearance, counsel for the organization had met with the controller’s attorney and the prose- cutor to discuss resolving the case. Through those meetings the controller agreed to take a plea deal, which would conclude both the criminal and civil cases against him. As part of the plea agreement, the controller would not plead guilty, but would concede the state had sufficient evidence to pursue a criminal case and likely a conviction against him. The plea agreement included a provision for the immediate return of $78,000 to the organization. The controller would also be responsible for repaying the difference between the total loss plus investigative costs per my report, less the $49,000 received from the insurance company and the $78,000 paid up front. The repayment of the funds would occur to the organization over the next five years. The controller in return would avoid any jail time, and would receive a suspended sentence along with seven years of probation and 100 hours of community service.

The plea agreement did not include resolving recovery by the insurance carrier for their claim payment of $49,000 to the organi- zation, as they were not party to the actions. Therefore, the insurance company would likely continue to pursue repayment of the $49,000 directly from the controller as well.

The controller accepted the plea deal, paid the initial $78,000 to the organization, and avoided jail. As much as everyone involved wanted to see the controller go to jail, I believe everyone directly involved in the investigation was satisfied that the case was


successfully pursued and the organization recovered as much as it did. Now the organization could put the whole event behind it and focus on the future, with the hopes of implementing better controls and procedures to prevent similar things from happening again.

I knew that such outcomes were common in these types of financial cases, and as much as I hoped the controller would go to jail even for a minimal amount of time, I also knew the leverage in resolving these cases and returning the funds to the victim almost always led to the suspect avoiding prison. The controller received a felony conviction on his record, had to perform community service, and had to report to a probation officer regularly for the next seven years. All of these would be inconveniences for the controller. Not the ultimate goal of inconvenience via prison, but nonetheless, inconveniences he would have to deal with for a while.

I look back very satisfied that I did the best investigation possible, from beginning to end, and that my involvement was a big part of the reason the organization received nearly all of its funds back, something that seldom happens in these financial cases. I know my role was instrumental in nearly every aspect of the case, but it was the combined efforts of Tim, the senior accountant, the human resource director, and counsel that made the outcome such a success.

I found it interesting that the detective and the prosecutor never asked Tim for the original evidence stored and maintained in Tim’s secured storage room at his building. We worked so hard to establish and maintain a strong chain of custody, documenting and preserving every step of the way, just as every case needs to be completed to ensure the evidence will be admissible, and yet we never provided any of that information, let alone the evidence itself, to be used in the case. Interesting.

With the case over, Tim and the rest of his coworkers in his building got their storage room back, and the hallway looked less like a crime scene once the evidence tape was removed from the entrance door.

At my firm, we were able to clean up our evidence room, box and seal all the records relating to the case, and burn CDs of all our electronic files. It was a good day for us, as we have limited secured storage space, and I, personally, look forward to clearing the room to make space for new cases. As quickly as a case clears, another is

182 Epilogue

right around the corner just waiting to be detected. Then we start the whole process all over again. The process doesn’t change much, only the facts and players specific to each case. With the sealing and archiving of the boxes of records, our role in the case officially ended. All our invoices were paid in full.