fraud

Looks like the scope of the guardianship-transfer-for-financial-aid fiasco is growing

Image courtesy of Adobe Stock.

The first reports of a new college admissions scandal indicated the scheme was in play in Illinois. A small number of minutes research on the ol’ net shows the scandal is now open in Missouri.

With a sinking feeling, I am wondering where else this will show itself.

Scheme reportedly exists in Missouri

Kansas City Star – 8/5/19 – Did rich Missouri families give up custody of kids to get college aid? How’s that legal? Cases have been found of families in Missouri transferring guardianship of children in order to get financial aid.

(more…)

Jim Ulvog

College admissions scandal update and freshly reported financial-aid scheme remind me of a verse from Jeremiah about the deceitfulness of the human heart.

Image courtesy of Adobe Stock.

At a status conference update for the college admissions scandal, the prosecutors said they have turned over about 3 million pages of documents to the attorneys for the 19 defendants still fighting the charges. This includes around a million pages of emails and 4,500 phone conversations which were wiretapped.

Several attorneys claim they want to see all the FBI interview forms (those infamous 302s, which are subsequently prepared notes of interviews documented at some various time after the interview) for all of the people *not* charged in the investigation. The claim is there is exculpatory evidence somewhere in the 302s. The judge denied that request for the moment.

For more info, check out USA Today on 6/3/19: College admissions scandal:  Parents say payments to ringleader weren’t bribes. Next status conference is on October 1.

Another scheme

Financial aid calculations are based on family income and assets.  If a student is assessed as ‘independent’ only the student’s income and assets enter the calculation.

So, how do you get mom’s and dad’s high income and very expensive house removed from the calculation so the student gets a bunch more assistance?

(more…)

Jim Ulvog

First sentencing in college admissions scandal

Image courtesy of Adobe Stock.

A sentence has been handed down in the first of the college admission scandal cases to reach a judge. The former sailing coach at Stanford received:

  • $10,000 fine
  • 1 day in jail, already served
  • 6 months house detention
  • 2 years supervised release, i.e. probation

Prosecutors recommended 13 months in prison.

Several articles pointed out this person is the lease culpable of those lined up for sentencing. He did not receive any money directly.

If I read the articles correctly, the only student admitted as part of this scheme was not actually an athlete and has since been expelled.  No other students were admitted.

One key point of detention is an assessment of what type of crime is present.

(more…)

Jim Ulvog

Intro and update to college admissions scandal

Lots of things going on behind closed doors that have drawn the focused attention of the U.S. Attorney in Boston. Image courtesy of Adobe Stock.

The pretend-to-be-an-athlete-in-a-sport-you-have-never-even-played scandal in higher education is one of many issues I have not focused on over the last year or more.

Family issues have pulled me away from blogging. Hope to start getting caught up on the massive changes taking place around us. I’ll begin with the college admissions disaster.

Brief background:

A large number of parents were paying Mr. William “Rick” Singer to help their children get into colleges where their kids wouldn’t otherwise gain admission.

More background:

The schemes, according to a long string of articles covered in most newspapers which I won’t link, included techniques such as:

  • Creating fake profile of the student being a competitive athlete when the student had not even played the sport.
  • Paying to have another person take your SAT or ACT tests.
  • Hiring a proctor to oversee extra-testing time and then correcting answers.

Flow of cash was complicated, as expected. Most of the dollars went to a non-profit foundation set up by Mr. Singer. He then distributed portions of the money to college sports coaches, proctors, and other participants. Some of the payments went directly from the parents to the colleges.

Oh, by making those payments to a charity, the payments became tax deductible. So there is also a tax fraud angle for all the involved parents to ponder. You can easily guess someone from IRS Criminal Investigations is involved in each of the cases.

Current status:

(more…)

Jim Ulvog

The story on Silk Road, an on-line drug bazaar, shows the power of rationalization and self-deception

Cover of “American Kingpin” from Amazon. Used under fair use.

The sad tale of Ross Ulbricht and his on-line drug bazaar called Silk Road is a good study of the outer limits of how far rationalization can carry a person.

It is also a frightening illustration of Jeremiah 17:9. From the New International Version, ponder:

The heart is deceitful above all thing and beyond cure. Who can understand it?

Considering the tale of Silk Road is useful for accountants wanting to learn about the outer fringe of the internet and he investigative power of the federal government, believers who would like an illustration of the frightening level of deceit that lives in the human heart, and anyone else wanting to learn more about the dark worlds that normal people will never see.

My posts are gathered into two collections on my other blog, Outrun Change:

(more…)

Jim Ulvog

Another scam to beware: phishing for W-2 info

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

Ok, so you know it is a scam if you get a call from “the IRS” saying you have to pay your tax bill right this instant because the local cops are on the way to arrest you.

If you get one of those calls, hang up. Don’t even talk.

Here’s the newest phishing scam now starting to hit charities.

Kelly Phillips Erb explains the new scheme: IRS Issues Urgent Alert as W-2 Phishing Scam Spreads During Tax Season.

(more…)

Jim Ulvog

After reading about the mess World Vision is in, ask yourself what you are doing to prevent a similar disaster from disrupting your programs.

Question this manager is pondering: Do we have good enough controls to prevent this from happening in our field programs? Image courtesy of Adobe Stock.
Question this manager is pondering: Are our controls good enough to prevent something like this from happening in our field programs?
Image courtesy of Adobe Stock.

A few articles to follow up on the accusations a World Vision manager allegedly routed aid money to a terrorist organization.

  • Looks like the situation with the Gaza branch of World Vision could turn into an accounting argument.
  • Response from World Vision.
  • Other aid workers charged.
  • Finally, more questions for managers and finance teams to ponder.

A number of public comments on twitter are claiming the total budget for the Gaza branch is only $2.2M a year.

Some people making this comment usually continue the discussion by calling into question the entire set of accusations from the Israeli government because the current claim is the manager diverted approximately $7 million a year.

This position implies that accusations of diverting $7M a year when the budget is only $2.2M means the accusations are untrue.

8/8 – AP, The Big Story – World Vision: Israeli charges based on “huge gap” in numbers – Article points out the intelligence agency accuses the program manager of diverting food, agricultural equipment, and medical supplies in addition to currency. That means there was in-kind material as well as heavy equipment.

The accounting argument appears towards the end of the article. A Foreign Ministry representative is guessing that the stated budget does not include in-in-kind donations.

A World Vision representative in Germany says the budget of $22.2M for the Gaza office over the last decade does include in-kind materials.

So, we may wind up with this being an accounting issue in addition to a loaded political issue on top of an alleged defalcation issue carrying over into alleged terrorism funding issue.

8/9 – Al Jazeera – Christian charity ‘top of Israel’s target list’ – It will help you filter news you hear about the manager of the Gaza office if you keep in mind the visible political agenda you will see in much reporting.

(more…)

Jim Ulvog

Initial reaction to alleged diversion of World Vision funds

Image courtesy of Adobe Stock.
How can you tell who is really behind the mask, and what is he doing inside your organization? Image courtesy of Adobe Stock.

Last week, the Israeli intelligence service accused a World Vision manager of diverting resources to Hamas. The allegation is he diverted about 60% of the annual funds flowing through the Gaza office, with the amount diverted allegedly around $7M a year.

Some initial reactions are surfacing from donors. Also, some context for magnitude of the alleged amount. Finally, some questions to ponder for leaders of charities and those of us who audit NPOs.

8/4 – World Vision – Statement on World Vision Staff Arrest – Full statement from World Vision. Doesn’t say a lot because they don’t yet know a lot. I’m sure there will be more comments as the situation develops.

8/5 – Reuters at Business Insider – Australia suspends World Vision funding over allegations its Gaza representative funneled millions to Hamas – The Australian government has provided about $4.4 million over the last three years to World Vision for use in helping people living in Gaza and West Bank. The aid has been suspended over the allegations.

(more…)

Jim Ulvog

How do you keep one person from diverting funds and causing a front-page fiasco for your charity? World Vision illustration.

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

How do you keep one person from creating a public relations fiasco or, even worse, damaging the reputation of your entire organization? How do you keep a manager from illegally diverting a huge amount of resources?

What controls and procedures do you have in place to prevent something like this in your organization?

Let’s start with a FBI agent who pled guilty to charges of passing sensitive and classified information to a Chinese government official and businesses in China.

8/1 – ABC News – FBI Employee Arrested for Allegedly Acting as Secret Chinese Agent – According to the story, we can drop the word ‘allegedly.’ This week he entered a guilty plea to one felony charge. The government claims he was gathering sensitive and classified material based on instructions from his handler.

He was born in China and was naturalized in 1985 at age 16.

So, the FBI with all its investigative powers and intentional counter-intelligence operations was not able to prevent this man from being an agent of the Chinese government.

So what chance does a nonprofit charity have of filtering out people who want to do bad stuff? That is something to consider as we grieve the following story.

This week the story broke that a manager of the Gaza office of World Vision allegedly diverted a lot of money to Hamas for use in terrorist activities. At this point the story consists of allegations, but allegations from the Israeli security service after a few weeks of interrogation are extremely serious.

8/4 – Hareetz – Top Official in Christian Aid Group Charged With Funneling Funds to Hamas – The security service, Shin Bet, arrested the director of the Gaza branch office on June 16. He was indicted Thursday.

Shin Bet accuses the manager of joining an armed wing of Hamas in 2004 and being sent to infiltrate a western aid organization a year later.

In 2005 he was hired by World Vision and in 2010 was promoted to director of the Gaza branch.

(more…)

Jim Ulvog

Journalist returns call to scammer who claimed to be from the IRS. Entertainment and laughter follows.

Image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

Most people hang up on robocalls from charities. If there is a real person, I ask them to go into their spiel and then set the phone down, letting the caller waste a minute or two of their time.

William P. Barrett, writing at New To Seattle, actually takes those calls. He then dissects the charity’s financial statements showing the minimal amount of charity taking place in some organizations.

To the repeat offenders he awards the title of “America’s Stupidest Charities.”

You probably know scammers have a new scheme of falsely claiming to be from the IRS. Their spiel is you’re just about to be arrested for failing to pay back taxes, the police are on the way to your home, but you can avoid going to jail today by settling up right now by sending money on a prepaid debit card or wire transfer.

Mr. Barrett called back to the number provided in a robocall. The person answering spoke poor English and sounded like he was calling from a boiler room.

He describes the call in his post, Scammers invoking the IRS inundate Seattle.

How did that conversation go? Quite entertainingly.

(more…)

Jim Ulvog

Here’s a new scam you may not have heard about: e-mail from your boss telling you to wire some money to a ministry partner right away

Image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

Let’s say you are the controller in the finance office. Let’s say your boss sends you an email telling you to wire some money to a new organization in the field that he just met because they have the ability to do something great and they need the funds to seize the opportunity right now. Today. Oh, the amount is within budget and he gives you the routing information for the wire. Email is signed using your boss’ nickname and based on a quick glance, the e-mail address is legit.

You quickly send the wire, right?

(more…)

Jim Ulvog

About that “invoice” to renew your fictitious business name for $150. It’s either a “misleading solicitation” or a scam. Take your pick.

About a week ago I renewed the fictitious business name used for my publishing projects. Paid San Bernardino county $55. Only reason it took 20 minutes to prepare it is that the county revised the form since my last filing. Since I’m a cautious accountant, it was obviously necessary to read all the instructions just to make sure nothing changed.

Also received an invoice in the mail today that looks like it is from the Fictitious Business Name office reminding me the FBN is about to expire and the fee will be only $150.

Hmm. The form I just filed said the fee was $55.

If you look carefully, the outside envelope and “invoice” both contain one statement each saying this is not an official government request.

(more…)

Jim Ulvog

Price cut on print books

I’ve dropped the prices for the print copies of my books available at Amazon, Barnes & Noble, and iTunes store.

Here is what you can find on-line:

tragedy-cover

 Tragedy of Fraud – Insider Trading Edition

Story of Scott London’s fall from regional audit partner at KPMG to prison inmate because of his insider trading.

(more…)

Jim Ulvog

Rationalization in action is frightening to see

It is scary to see the power of rationalization. We humans can exert great effort to persuade ourself that wrong is right. With enough effort, we can persuasively argue that wrong is a positive good, the noble alternative.

It is unsettling to me when I see a client deeply believe that tax or accounting fraud is perfectly legitimate and I am the one who is in the wrong to suggest otherwise.  Worrisome is a watching a friend who believes that hurtful or destructive or nasty or evil behavior is Godly. Even more upsetting is when I catch my brain in full rationalization mode.

No, I’m not about to give any examples from clients, friends, or my life.

Unfortunately, we have a sad public example of rationalization racing at full power (sad pun intended).

(Cross-post from my other blog, Attestation Update.)

Some background on Lance Armstrong’s massive doping schemes

Many public sources report that Lance Armstrong has been found to use performance enhancing drugs for a very long time. He won seven consecutive Tour de France races.

According to Wikipedia, in 2012 he received a life-time world ban on all competitive events in all sports. His seven wins were revoked. He was found to have engaged in sophisticated doping schemes for many years.

In 2013, he admitted massive doping in an interview with Oprah Winfrey. He admitted using a long and specific list of banned substances and did so in each of the 7 Tour de France races.

Rationalization on display

Having set the background, let’s look at an article in The Guardian:  Lance Armstrong: I would probably cheat again in similar circumstances. Thanks to Professor Mike Shaub (twitter @mikeshaub) for pointing out the article.

(more…)

Jim Ulvog

Is the cost of reducing fraud risk greater than the loss from a fraud incident?

I recently had the opportunity to visit with Sam Antar, convicted felon and former CFO of Crazy Eddie.

During our interview, Mr. Antar suggested a reason why businesses don’t put enough effort into fraud prevention and detection. He said the cost of deterring fraud may be more expensive than the consequences of fraud. Before I refine the concept, look at some costs he mentioned:

  • In the corporate world, particularly companies that have grown for a while, there needs to be a lot of systems put in place to deter and mitigate fraud risk.
  • There needs to be an audit committee and they need to have resources available to them. Translate that to they have authority to hire legal and accounting experts. They need training personally. This is expensive.
  • The audit committee, consisting of skilled and knowledgeable people, must have a direct line of contact to the Board of Directors. That is expensive in terms of time.
  • The Board of Directors has to have a substantial amount of financial skills. That is expensive in terms of time and dollars for training and dollars for their access to expert resources.
  • At some point in the growth curve, there needs to be a robust, skilled internal audit department. That could get quite expensive, if you look at it only in terms of cash outflows.

I would add to that the time involved to implement quality controls, policies, and procedures. Those will take a lot of time for the finance & accounting team. In turn, those procedures will take time for operational staff to follow. All of that translates into more staff.

That can get costly fast.

What is the cost of a fraud incident

(more…)

Jim Ulvog