Tragedy of Fraud

Remember when you tossed a rock out into a calm lake?  The ripples of the splash spread far.  You can see the ripple bounce off a rock or the shore and have a reflected ripple spread across the lake.  If the water is very calm, you can see the ripples spread out a long ways from the initial splash.  It is the same way with fraud.   The devastation just spreads and spreads.

Here are my posts on the tragedy of fraud.  Remember I know nothing of the specific case discussed other than what is already public.

Alleged embezzlement at nearby church

posted 9-8-10

A church in my area has been hit by an embezzlement scandal.  It particularly grieves me because I have a number of friends who worship there.

Basic details are that the business administrator is accused of embezzling between $720,000 and $960,000.  He has been arrested and formally charged with several felonies.  He has denied all charges.  Reports in on-line media do not provide any details of how the alleged scheme was supposedly carried out.  We wait while the judicial system resolves the accusations.  In the meantime, if you are so moved, please pray for the leadership (who are quite distracted from their ministry, I would guess), the membership (who are probably hurt and angry), the accused, and his family (they are victims too).

More details in this article at the Church and School Embezzlement blog.  Articles from the Daily Bulletin, the local paper for my community, are no longer available on-line.

Full disclosure:  It is important to explain that I know nothing about this tragedy beyond what I have read on-line.

Update on embezzlement at church near my home

posted 11-20-10

Previously discussed the alleged embezzlement at a church in my area in this post.  I’m sad to report the word alleged can now be dropped from the story.  The local newspaper reported today the accused changed his plea from not guilty to no-contest.  There are some subtle legal differences between a no-contest plea and a guilty plea, but the practical impact on the criminal trial is minimal.  I read the publicly available court documents which don’t add any detail beyond the newspaper article.  (yes, the basic documents for all criminal, traffic, and civil cases are available on-line with just a few mouse clicks.)

The newspaper article says there is a plea bargain agreement calling for 3 years probation and $25,000 restitution.  The DA on the case said the restitution figure is not higher because he would not have been able to prove (presumably he is referring to the beyond-a-shadow-of-a-doubt level of proof) that the bookkeeper stole the alleged amount of $750,000.

It is worth mentioning again that I do not know anything about the case beyond what is available through an internet search.

A few thoughts.  This shows through a very sad situation that it is important to develop and enforce good internal controls.  It is not for fun and entertainment that accountants insist on all those silly procedures you hear about all the time.  We fuss about those things because we want to prevent this kind of tragedy.

If you are inclined to do so, please pray for the bookkeeper, his family, the church leadership, and the members of the church.

I’ll have more to say about this situation for several reasons.  First, the story is public information.  Second, I do not know anything about the case other than what I have already mentioned in these posts.  For those reasons this situation is different from many others I have had professional involvement with in the past.  I can’t discuss those other situations beyond vague, sanitized platitudes because of the confidentiality restrictions I willingly comply with.  So, this is a case for which I have no confidentiality restrictions and therefore am free to pontificate.

The tragedy of fraud

posted 11-22-10

I have discussed this fraud at a local church here and here.  The very short version of the story is a bookkeeper accepted a plea bargain to one felony charge of theft.  The plea agreement reportedly calls for 9 months in jail and $25,000 restitution.

Fraud has the potential to wreak havoc on a ministry.  If you haven’t thought about the collateral damage from a fraud incident, ponder with me some of the ways that this has turned into a tragedy.

The bookkeeper – He is going to jail.  No matter how well deserved that may be, it is still a tragedy.  He is now a felon.  His future employment prospects are bleak.  He is reportedly age 48.  He will have a difficult time providing for his family for the two decades until he hits retirement age.  How will he feed his family?  He has tarnished his own name, his family name, all people of faith, and the cause of Christ.  His actions will probably bring ridicule on other people who convert from a different faith to Christianity.  There are multiple tragedies here.

His family – They obviously have been devastated.  Again, I know nothing of the case other than what is on the internet, but his wife almost certainly knew nothing of what was going on and his children were certainly unaware.  Picture if you can the conversation when the husband had to tell his wife what he had done, the tears streaming from her face when he said he got caught and the police will be here soon.  I cannot imagine the devastation the kids felt when daddy told them that he was in trouble.  Now imagine their horror to know that daddy admitted everything in court (they don’t understand stuff like nolo contendere, and that an admission now prevents the very high risk of many long years in jail, and a no contest plea can’t be used against him in a civil trial).   Then imagine the cruel things that could be said on the school playground in the future.

The shock to his family that I have described here is what I wish all fraudsters could see in their future – maybe it might change their calculations in the fraud triangle.  Here’s what I’d like to say — forget about all the other consequences that are headed your way — how will you tell your little girl that her hero is going to jail?

Now think about the implications for the church.

Members of the congregation – The people sitting in the pew have been hurt deeply.  There is probably a wide range of emotions, all of them harshly negative.  It was their hard-earned money they sacrificially gave to the church that was stolen.  Will they think twice before sacrificially giving again?  Without having talked to anyone at the church, I can guess that their anger (which is perfectly justified) is venting at the bookkeeper, the church leadership, and even the pastor.

Church leadership and the Pastor – They are most likely bearing the brunt of the anger and have to take all the public attention.  They have to keep the ministry moving even as they themselves are feeling betrayed.  They have poured tremendous effort into dealing with the fraud situation that could have otherwise been focused on helping people, starting new programs, and generally improving the world for Christ.  Instead, they have been terribly sidetracked.  I am sad for the ministry impact that could have been.

I do not wish to imply through my comments on internal controls the slightest suggestion that any of this is the fault of the leadership.  Please understand this:  the responsibility for the fraud rests squarely on the shoulder of the fraudster.  I do not know what method was used for the fraud.  That it totaled the alleged amount over several years suggests to me that it was a subtle, clever scheme.  Whether internal controls could have prevented it, I do not know.  Let me be very clear: regardless of whether the internal controls were loosey-goosey or rock solid, the leadership and pastor are victims of the fraud.

The ministry of this particular church – Even though the size of the involved church is in the megachurch range, losing an alleged $750,000 over several years is a big drain.  Imagine the extra pressure on budgeting and staffing created by that missing money.  Picture the number of staff that either were let go or could not be hired because of missing around $250k or so per year in the budget.  Then imagine the lost impact on the community and the mission of the church from that lost staffing.

All of this makes me very sad.  It breaks my heart to see the impact on the individual, the family, the church leadership, the church members, and the kingdom of God.  At the moment, I see nothing good from this situation.  I see tragedy all around.

Please pray.  For everyone affected.  Then double-check the internal controls at your church.  Please.

The Tragedy of Fraud – part 2

posted 12-15-10

Previously discussed the tragedy of fraud.  The ripple effects of the massive Madoff fraud have been spreading.  The ripples include a lost life this past week.

As you recall, Bernard Madoff was convicted of running a huge Ponzi scheme and is currently serving a 150 year sentence.

Madoff’s son ended his life last week.  Out of respect for the family, I won’t provide his name here or much else in the way of details.  News reports clearly indicate the son has been under severe pressure dealing with the after-effects of the fraud.  That is the apparent causative factor in his taking his own life.

Please pray for the son’s family.  News reports indicate his wife and children have been devastated, which is quite understandable.

My guess is that Bernard Madoff was not counting on the death of his son as part of the cost of the fraud.  Such are the horrible, unexpected consequences of fraud.

The tragedy of fraud – part 3 – the sentencing

posted 12-21-10

On December 20, 2010, the judge pronounced sentence in a case I’ve been following.  Why go into detail?  To continue the discussion of the massive devastation of fraud.

Previously I discussed the accusations that a local church has suffered a very large embezzlement.  When the person entered a plea agreement, I discussed the Tragedy of Fraud, which contains a number of comments I’ve wanted to make for a long time.

The sentencing is done and there are a few more observations I’d like to make.

Two disclosures:  First, I will not be mentioning any names, either of the individual involved or the church.  If you are really interested, you can spend a few minutes searching the ‘net and find all the public documents I have used for my posts.  Second, I have a number of friends who worship at this church, but I do not know anything about this case or the individual other than what is public information.  Because I have no private knowledge, that gives me the freedom to pontificate.  If I had inside info, the ethics rules of my profession would require me to protect those confidences.

Jail time – The sentence is 270 days incarceration in county jail with credit for 2 days time served.

Probation – the probation runs for 36 months.  I read the court-ordered terms of probation.  Ouch.  He must submit to a search of his property and person without warrant at any time upon request – he’s waived fourth amendment protection.  He can not work as a health care provider.  He can not possess any weapons.

He can not have possession of checks, signature authority on checking accounts of others, or deposit anyone else’s checks without permission of the probation department.  He can not handle money without disclosing to his employer the present case and his terms of probation.  Why do I mention those particular terms?  Because that means he is unemployable for the next three years in any job that involves finances.  That is a serious restriction since his primary skill set is in the financial area.  This follows up my comments in the Tragedy of Fraud that he is going to have a hard time getting a decent job.

Restitution – The person must repay the church $25,000.  The alleged amount was really high – in the range of $700,000 or more.

Fines and fees — When you add up the various fines and fees, it looks to me like he will be paying the county $3,915 in addition to the restitution to the church.  This does not include reimbursement for the public defender, which were waived.  Imagine the cost of a private attorney!

Why go into this detail?  It is the next round of the expanding ripple effects of fraud.  The devastation of a fraud is frightening.

Next post: possible civil litigation

One Response to The tragedy of fraud – part 3 – the sentencing
  1. Of course, the penalties do not cease after probation has ended. Every time the person applies for a job, or every time that person encounters someone in the community, or any time the person’s kids (if the person has kids) encounter someone in the community, the repercussions are still present.

Tragedy of Fraud – part 4 – possible civil litigation

posted 12-22-10

Previous post discussed the sentencing in a fraud case I have been following.  Jail for 270 days, $25,000 restitution, and $3,915 of fines and fees.  The ripple effects of the fraud have not ended.  The next chapter might be in the civil law area.

Future litigation — When you read the newspaper article discussing the sentencing, the defense attorney has several odd comments, including saying “(t)here’s no admission of any wrongdoing in this case” (I’m quoting the newspaper as they have quoted the attorney).  He also suggested there is not enough oversight of the church’s finances and there should be an investigation of their financial status.  He also said the amount of restitution ($25,000) is just the amount that is missing.  Note the word ‘missing’ – not what was stolen, or what the accused admits.  It is just missing.

Those are peculiar comments on their face.  Why claim the person did nothing wrong and suggest the money has just been misplaced?  If that’s the case, then why is there even a case?

Those comments make sense when you combine three pieces of information:  the allegations that he took over $700,000; restitution will be $25,000, and he pled nolo contendere.

To put this together, think civil suit.  The church must be thinking they will be short around $700k or $900k after restitution.  I know nothing about the defendant’s financial situation.  I know nothing about what the church is thinking in terms of their plans, but it would be quite reasonable for someone outside the situation to think the church may pursue civil action to recover the balance.

(The theological discussion of whether Matthew 18 says you forego civil action when massive amounts have been taken by a believer is for another day.  Besides, that is way beyond the scope of my blog!)

The defense attorney obviously thinks the church may take action.  Thus, he is getting his client through the criminal phase of the case and at the same time leaving him positioned so he can at least try to defend himself if there is a civil case.

How?  This is where the nolo contendere plea becomes important.  That plea is different from a guilty plea.  It is my understanding that in the criminal area, a nolo plea is the same as a guilty plea. Thus in this case, even though he pled nolo contendere, the man will be reporting to jail on January 14, 2011 for 268 days.  That case is closed.

If civil litigation were to follow, it is my understanding a guilty plea would be admissible in that civil case as proof of wrongdoing and the case would be easily lost by the person giving the guilty plea.  A nolo plea in a criminal case is not an admission of wrongdoing in a follow-on civil case.  At least that is my general understanding, although I did find one web site which stated that in California, that only applies in a misdemeanor case, not a felony case.  So, I don’t know how the nolo plea would work in this situation. (That’s why you need a good attorney if you get into a serious problem!  Also—remember the preceding legal commentary is from a CPA and is worth exactly what you paid for it – nothing!)

So when I look at all of this as a businessman, I can only guess there is a really good chance of civil litigation to follow.

Why have I gone into all this detail?  Why outline the jail time, severity of probation, and high likelihood of civil litigation?  It is one more round of the horrible ripple effects of fraud.  The devastation of a fraud incident is frightening.  Please reread The Tragedy of Fraud.  Other posts accumulated at Tragedy of Fraud tab at top of page.

Tragedy of Fraud – part 5 – becoming fodder for blog posts

posted 3-19-11

One of the ripple effects when a fraud incident that hits the papers is that you become fodder for snide comments in the blogosphere.  I suppose the same thing would apply to any incident that hits the newspapers.

Spent some time today looking for follow-up news on the fraud incident I have been following.  (All of my posts have been combined into one page, which can be found here.)  One of the ideas I’ve focused on is that the repercussions of a fraud spread out like ripples in a pond when you toss a rock in.

I can’t find any new public documents on the case.  Presumably the individual is now serving his 270 day sentence.

The newest ripple spreading out from this fraud incident can be seen in a lot of the blog posts.  In my Internet research I noticed a large volume of posts on the case.  Quite a few of them were snarky.

Some comments were in the “what else would you expect from a former Muslim?” category, which obviously ignores that this person’s conversion is reported to have taken place 12 years ago.  At the opposite end were the “what else would you expect from an apostate from the true religion?” From those who don’t believe in any God came the “what else would you expect from an evangelical?” and the “what else would you expect from one of those crazy kooky megachurches?” posts.  One website makes it their business to post every story they can find on legal cases against Christians.

Since the Internet is permanent, these posts will be around as long as those authors wish to continue blogging.  Even when they close down their blogs, the Google memory machine will have the ‘cached’ articles available for your reading pleasure several decades from now.

So one more broad ripple effect of a fraud incident is that your children/grandchildren/closest friends/bitterest enemies can read snide/rude comments regarding your failures for the next 20 or 30 years.

Another chapter in the Tragedy of Fraud

Posted 4-30-12

Prison.  Bankruptcy.  Publicity. Civil litigation.

Such are the wages of fraud.

It is such a tragedy.  Such a waste.

The mayor of a neighboring city provides the next example of the devastation from fraud.

I’ve discussed this case in my other blog, Attestation Update, over the last year from the perspective of an auditor. See my update for developments this week:  Guilty plea in corruption trial mentioned a year ago.

Here is my short version of the government’s accusation, based on reports in the local paper, mostly this article from the Daily Bulletin.

The mayor used a cutout to communicate demands for money to a local business to help the business get a conditional use permit.  A CUP is essentially a permit to use a building in a certain way – sort of like a business license.

The payment was disguised as a consulting contract from the restaurant/bar to the cutout’s consulting business. The actual flow of cash was from the shaken-down business to the cutout’s consulting business and then to a construction company the mayor owned. From outward appearances those contracts and the bribery payments would appear to be legitimate business deals.

The immediate tragedies:

  • Felony conviction – The former mayor has signed a plea agreement admitting to one felony. As soon as the judge ratifies the agreement, this man will be a felon.
  • Prison – The plea agreement suggests a prison term of 18-24 months. What will the judge decide? We will have to wait. The point is the mayor is headed to jail.
  • Bankruptcy – According to the newspaper article, this person’s business is bankrupt. He lost his income source.
  • Publicity – You can read all about him in the local newspapers. Those articles will likely be around for decades.
  • Legal fees – The former mayor retained a private attorney.  I have no idea what costs have been incurred, but would make a very wild guess it is in the range of $25,000 to $75,000. Could you take that hit to your savings accounts?
  • Future litigation – The shaken down business is suing the city. I’ve not read any filings on the case, but would obviously guess that the former mayor will be named in all the litigation.

Full disclosure:  I am a casual acquaintance of the new, current mayor of the city. Haven’t seen or talked to him in years, but the rules of blogging and ethics call for me to mention that so you may filter my comments as you wish.

Wages of fraud – 2 year prison sentence is just the start

posted 8-10-12

(cross-post from Attestation Update.)

I’ve been following the corruption case in the city next to where I live.  This post describes the sentencing and additional consequences of the fraud.

The mayor was accused of accepting bribes from a local business in return for helping them get back in business. In April 2012, he pled guilty to one count of bribery. The remaining 9 charges were dropped at the sentencing.

Yesterday he was sentenced to two years in federal prison.

The sentencing is reported in the Daily Bulletin’s article, Ex-Upland Mayor Pomierski sentenced to two years in prison for bribery.

At the sentencing, he read a letter which included the following comment:

“The last two years have been difficult. I lost my wife, lost my friends, lost work and the job I loved the most, being mayor of Upland,” Pomierski said. “I was dead wrong. I know I will pay for it. I already have paid for it in the last two years in some way, shape or form.”

The tragedy of fraud

Before you say that a two-year sentence is light, keep in mind that trials are risky. For the mayor, there is a chance he could have been convicted on all 10 counts and faced an extremely long sentence. For the prosecutor it is the same. Their case could have fall apart. A negotiated two-year sentences a good settlement on both sides.

Let’s look at some of the other penalties.  I will take his comment in court at face value because I know nothing more about his situation than what I’ve read in the newspaper.

Here’s a list of the wages of his scheme:

  • Two years in prison. 730 days and nights.
  • His wife left him.
  • Many of his friends have abandoned him.
  • He lost his construction company, which was the source of his income.
  • He has filed for personal bankruptcy.
  • He lost his job as mayor.
  • He is a convicted felon, a status that will never go away.
  • His friends, family, and everyone who knows him now knows he has confessed to accepting a bribe.
  • The tale of his felonious behavior will be visible on the ‘net for decades to come.
  • His grandchildren, great-grandchildren, and great-great-grandchildren who decide to research their ancestry will get to read all about this incident.
  • When released from jail he will never get a job that requires any licensing. He will never work in construction or public service again.
  • He will be 60 years old when released from prison. It’s likely his only retirement income will be Social Security, which is a severe change from what he was expecting just three years ago.
  • His future standard of living will be a small fraction of what it’s been the last several decades.

That is a serious amount of consequences.  I don’t go through that list because I’m sorry for him.  He deserves it all.

I go through that list of consequences because I wish fraudsters were somehow able to ponder the severity of consequences before they engage in their shenanigans.

Wages of fraud – loss of licenses

posted September 11, 2012, 6:44 am

The sad tragedy of fraud in a neighboring city is in the next to last chapter. Yesterday one of the admitted middleman in the Upland bribery scandal was sentenced to a year and a day in federal prison.

The Inland Valley Daily Bulletin discusses the case and sentencing in their article Co-defendant in Pomierski case is sentenced to one year.

Previously I described the wages earned from a felony conviction.

Add to the high cost the probable loss of any professional credentials or state licensing necessary to do your job.

{This defendant} was previously a real estate broker, but lost his license due to the conviction.

(There’s no value for my articles of describing the other individuals’ names. Once a person has been convicted or signed a plea agreement, their name is fair game, but I will still omit their names.)

I seriously doubt he will ever get his license back. That means he can’t work in the field where he has training and a lot of experience.

This individual had been able to do some work. He got a consulting job, which his attorney indicates he will probably lose. That makes sense – it’s sort of hard to do consulting work from behind bars. The wages of fraud include losing consulting projects you’ve been able to scrounge up.

Other defendants

I missed the article on sentencing of another defendant last month. There is one to go. From the article:

Upland contractor … was also named in the indictment and pleaded guilty. He was sentenced in August to six months in prison and six months on house arrest.

{The remaining defendant}, who has also pleaded guilty, is set to be sentenced Oct. 1.

Read more

If I’m understanding the case, that makes one conviction at trial and three guilty pleas. The sentences so far are two years in prison, one year & a day in prison, six-month prison & six months house arrest, with one sentencing to go.

 

P.S. In case it is not obvious:  Copyright © 2010/2011/2012  James L. Ulvog

One Response to Tragedy of Fraud

  1. […] been saying for years – because, regardless of the technology used to perpetrate fraud, the consequences of fraud are always […]

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