Fraud damages economy, near and far

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Beware, business owners and nonprofit boards: That employee or volunteer who always arrives early, stays late, works Saturdays and never takes vacations may be stealing money.

Those red flags can signal embezzlement, said certified fraud examiner and CPA Bob Johnson, who has performed fraud examinations in Colorado Springs for more than 30 years. When asked by the district attorney, a business owner, a nonprofit, a divorcing spouse, law enforcement and others, Johnson will dissect financial paperwork, “follow the money” and see where the money leads.

“I’ve done everything from homicide to embezzlement to elder abuse,” said Johnson, whose practice is restricted to forensic accounting. “Every crime or potential crime has economic involvement in it.”

Johnson investigates potential embezzlements, expense-reimbursement fraud, employees using social media during business hours, inappropriate insurance billings and other financial crimes. He is the chapter president of the Association of Certified Fraud Examiners (ACFE) in Colorado Springs.

Johnson has participated in civil and criminal lawsuits and has testified in district and federal courts as an expert in taxation, accounting, business valuation and fraud. He serves on the Colorado Society of CPA Professional Conduct Board in addition to several nonprofit organizations in the Springs. He also teaches ethics to graduate students at UCCS.

Technically, embezzlement is a theft by deception by a person of trust in an organization.

Business, marijuana fraud

Nationally, 6 percent of business revenues are lost to fraudulent activities, he said.

“All our consumer prices go up as a result of it. It hurts all of us, not just the owners,” Johnson said. Although a non-violent crime, fraud still damages business and the economy.

Most employee-perpetrated fraud is detected after it has been ongoing for 18 months, Johnson said.

“One of the most interesting cases involved a client who had an internal bookkeeper embezzle over $1 million over 20 years,” Johnson said. “It was detected when this person died.”

A small business can lose between $60,000 and $300,000 before embezzlement is discovered, he said. Once uncovered, researched, tried and adjudicated, courts have been “getting better” at sentencing people to probation, jail or both.

Many businesses and nonprofits do not report criminal acts because of embarrassment or potential bad publicity.

“Whenever we have related parties in a family business, that’s a possibility. If we’re asked to come look at a company, we do look at who’s in a position to create the fraud,” he said.

Johnson will investigate the “tone at the top,” the companies’ ethical climate. He also researches divorcing spouses attempting to hide assets during a dissolution of marriage, and business partners wanting to skirt bank loan covenants.

The marijuana industry’s requirements for transactions done by cash “has created a lot of issues for underreporting,” and tax implications as well, involving sales tax, corporate tax, personal income tax, Johnson said.

“The whole marijuana industry … the good operations seem to be doing it right. The bad ones, there isn’t enough of us to go in and investigate them all,” he said.

Elder financial abuse

Johnson has been working with retired judges and others in the community to launch courses about financial responsibility for the elderly as a response to the new mandatory reporting law for elder abuse.

The law requires certain professionals to report abuse, caretaker neglect and exploitation of at-risk elders. The state defines an at-risk elder as anyone 70 and older. Mandatory reporters include social workers, dentists, hospital personnel, nurses, physicians, physician assistants, court-appointed guardians, law enforcement, bank personnel, caretakers, physical and occupational therapists, clergy, chiropractors and fire protection personnel.

If elder abuse is suspected or seen, it must be reported within 24 hours.

Elder abuse can involve people who care for an elderly family member, Johnson said.

“With medical science keeping us alive longer, I think it’s going to be a problem longer,” Johnson said. “I see this as a big issue for the future. We’ll never stop a real bad person” but by educating caretakers on their rights and responsibilities for an elderly family member, “education is cheaper than prosecution,” Johnson said.

Burned files

Josephus “Seef” LeRoux works as a fraud examiner and audit supervisor for accounting firm BiggsKofford in Colorado Springs. Born and raised in South Africa, LeRoux worked as a police officer there for years before moving to Colorado and studying accounting here.

LeRoux will field requests from BiggsKofford customers.

In one case, he investigated a man suspected of insurance fraud. The man burned his files and called it an accident.

“The prosecutor asked us to show he did it on purpose,” LeRoux said. The examiners succeeded, although “it was pretty hard work.”

Another case lasted four years and involved a bookkeeper writing personal checks and transferring money between companies to cause confusion, he said.

Nonprofits victimized

In nonprofit fraud, nonprofit funds would be taken for personal use.

“One of the challenges in not-for-profit organizations, you’re typically dealing with volunteers and weak internal controls. They’re relying on people who care about the mission, not the internal controls,” Johnson said. “We’ve certainly seen that with churches.”

One of the disadvantages law enforcement has with nonprofits is that because they rely on donations, “They’re not apt to report it. Typically, they’ll have a restitution agreement in place and repay, because they don’t want the publicity,” he said.

“That ties everybody’s hands. It’s a very sensitive area. It’s not uncommon for churches and not-for-profit organizations to have us review their internal controls,” to prevent a fraud before it happens.

‘Grandma scam’

One of the more prevalent scams involves people who prey on older individuals, said Patricia Nashleanas. A certified fraud examiner, Nashleanas works for the Colorado Springs Auditor’s office. Last year she served as president of the ACFE.

“A young man or woman calls and says, ‘Hi, grandma! It’s your grandson [or granddaughter],’ ” Nashleanas said. The caller hopes the elderly person will say the name of one of the grandchildren.

“They claim they’re in trouble and they need money,” along with the admonition, “Don’t tell mom or dad. They’ll kill me! Can you wire me money to get out of jail?”

Nashleanas’ mother, who lives in Colorado Springs, received one of these calls recently.

“Mom is a very smart lady and knew it wasn’t one of her three grandchildren. They eventually hung up. She knew about the grandparent scam, so her radar was up,” she said. “Good for you, mom.”

In another common fraud, the caller will request money for a delivery fee on a car the person has allegedly won, said Detective Todd Ronk with the El Paso County Sheriff’s Office. Ronk investigates financial crimes.

An older Colorado Springs woman lost nearly all her savings, around $180,000, in this scam, Ronk said. Other scams involve callers who claim the person missed jury duty and must pay a fee, Ronk said, adding that fees are not required for people who miss jury duty.

Colorado Springs also sees construction fraud, where a contractor will take the money but not complete the work, Ronk added.

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