Without good compliance, internal fraud may go undetected for years, as in the following examples:
Example 1: An employee’s lifestyle doesn’t coincide with income levels
- Rita served as the Comptroller of a small city in Illinois. The $80,000 salary she earned would not support her luxurious lifestyle, including a $2 million custom RV, a vacation home, and a world-class horse breeding farm with 400 horses. Despite splurging on so many extravagant purchases, her peers did not suspect wrongdoing. Over the course of two decades, Rita’s internal fraud led to the embezzlement of more than $53 million, a huge sum for such a small city. By abusing her position of trust and authority, she schemed to funnel public money into her private accounts. While Rita was on leave, a temporary worker found confusing paperwork. When the temporary worker called the city’s bank, they discovered the fraud. A federal judge sentenced Rita to serve more than 19 years in prison.
Example 2: Personal financial difficulties
- Barbara, a long-time secretary and clerk at a local church, found herself in a bind. She struggled with a gambling addiction that sent her into spiraling debt. Over nine years, Barbara’s losses exceeded $800,000. To cope, she pilfered money from the church’s collection basket. After authorities uncovered her fraud, they charged her with crimes. A conviction led to Barbara’s nine-year prison term. She claimed that she didn’t know her actions could lead to imprisonment. Such statements give us reason to suggest that compliance programs should include human stories of people that broke the law; they should highlight the fallout for business owners and the person who broke the law.
Example 3: Lack of Transparency
- Brian, a charismatic physician, served as the administrative director for 20 years in his practice that included 12 physicians. Despite a robust practice, the group showed paltry profits. Brian had a strong personality, and he could bully the other partners into believing that expenses were high—without providing documentation. If people questioned him, he had the power to ostracize them, or provide less desirable working conditions. Finally, one of the partners hired an outside firm to investigate. The internal investigation showed that, over two decades, Brian bilked the practice out of more than $25 million. A conviction led to a prison term of more than 20 years.
Example 4: An employee colludes with vendors
- Tony, a construction manager for a fast-growing media company oversaw projects around the world. In that role, He had the discretion to assign contracts to various suppliers, contractors, and subcontractors. Some of those contracts exceeded millions of dollars in value. Although his employer paid Tony an excellent salary, he supplemented his income by accepting bribes from contractors that wanted to do business with him. The people paying the bribe would get the job, but without having to compete on price, victimizing Tony’s employer. Over the course of five years, authorities accused Tony of participating in a bribery scheme that exceeded $5 million in value. After a guilty plea, a federal judge sentenced Tony to serve a five-year prison term. Further, besides suffering losses as a result of Tony’s betrayal, the company lost millions of dollars in additional legal costs resulting from both an internal investigation, and a government investigation.