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CPE for Government Auditors

Inventory Misappropriation

Objectives:

  • Distinguish between the two major types of inventory misappropriation

Cash isn’t the only goodie that can be stolen or misused.

There are two ways to misappropriate a non-cash asset – steal it or use it personally.   The fraud tree calls these categories “larceny” and “misuse.”

Misuse

My husband once worked at a very upscale resort restaurant in Tucson where the Maitre’ D fired for taking home a half bottle of left over wine.  It is fraud when you use something of your employer’s for personal use.

Construction workers often do an odd jobs on the side using their boss’s equipment to make extra money.  Landscapers use backhoes and trucks to plant trees for new homeowners for a little extra cash. Insulation installers increase the depth of insulation for a cash payment.  Carpet cleaners tidying up new homes may clean the neighbor’s existing house for cash. In these cases, these employees are stealing inventory and misusing the equipment.

But wise managers will not tolerate any borrowing or use of their equipment or inventory.  My husband’s employer, a multi-state single-family-home construction company, does not allow employees to take anything home with them.  Damaged doors, knobs, appliances, or scrap wood are all off limits.  Sometimes, if you allow a little, you open the door to more blatant theft.  You can imagine a member of the crew accidentally scarring a bath fixture and then installing it in his mom’s bathroom!

In Nevada, Panther Valley Water Users Association’s former treasurer, Robert Klein, took out a bank loan in the organization’s name, and with those funds he purchased a backhoe and other items.

The most ingenious and complicated fraud he committed was the removal of the Truckee Meadows Water Authority (TMWA) valve that measured the valley’s water usage. In its place, he installed a dummy valve and an illegal valve past which water from TMWA’s mainline meter flowed. Panther Valley customers paid for the water they used, but the treasurer kept those funds, and the water authority received payment for only a small percentage of water that flowed through the main meter.[1]


Larceny

You’ll remember from an earlier newsletter that cash larceny is the theft of cash from an organization after the organization has recorded it. So, larceny of inventory is a theft of an organization’s noncash assets or inventory from an organization.

A friend worked as a manager of a truck stop right after he graduated college.  One of his new hires stole a whole display of watches by throwing them in a trashcan and then calling her husband to fish them out of the dumpster.  Too bad for her that a camera behind the building recorded her actions.

Larceny of noncash assets occurs in both corporations and government institutions. Over a 10 year period, beginning in 1997, a network systems administrator for the U.S. Naval Research Laboratory stole 19,709 items. These assets ranged from personal computers and printer toner to hard drives, software, and other office equipment amounting to more than $120,000.[2] Supposedly no secret technology information was taken.

New Jersey Transit employees stole and bus parts:

Attorney General’s Division Of Criminal Justice Charges NJ Transit Employee With Stealing Inventory and Selling Replacement Bus Parts Via The Internet NJ Transit[3]

Police & Criminal Justice Investigators Track $23,000 In Stolen Parts… Undercover Investigation Purchases Stolen Parts Via E-Bay…

Attorney General Peter C. Harvey and NJ TRANSIT Executive Director George D. Warrington, announced that the Division of Criminal Justice has charged a NJ TRANSIT employee with stealing more than $23,000 in NJ TRANSIT inventory and replacement bus parts and then selling the stolen items via the Internet. The State Grand Jury indictment charged official misconduct and other corruption-related charges.

“This indictment charges a NJ TRANSIT employee with stealing inventory and then selling the stolen parts via an Internet auction site. It is also charged that the employee attempted to conceal the thefts and obstruct the investigation by returning stolen parts to inventory and by eliminating the E-Bay web page,” said Attorney General Harvey. “It should be noted that this investigation and prosecution targeted a substantial theft. The Division of Criminal Justice has established a specialized program to assist government agencies to identify and report procurement fraud. The Attorney General’s Office is continuing to target all forms of corruption, at all levels of government.”

“I want to commend NJ TRANSIT bus management and police department for uncovering and thoroughly investigating this incident. Together with the Attorney General, we want to make it clear that such behavior will not be tolerated.” said NJ TRANSIT Executive Director Warrington.

According to Criminal Justice Director Vaughn L. McKoy, a State Grand Jury indictment charged Douglas Deleeuw, 51, Church Road, Brick Township, Ocean County, with second degree official misconduct, theft by unlawful taking (3rd degree) and money laundering (3rd degree). Deleeuw is identified as a former stock clerk at the New Jersey Transit Garage located in Howell Township, Monmouth County. Deleeuw’s employment has been terminated. If convicted on all counts, Deleeuw faces up to 20 years in state prison, a fine of up to $130,000 and restitution.

Director McKoy noted that the State Grand Jury indictment resulted from an investigation initiated by the NJ TRANSIT Police which targeted the removal of excessive amounts of in-stock inventory of replacement bus parts from the Howell garage. The investigation, conducted by NJ TRANSIT detectives and State Investigators assigned to the Division of Criminal Justice – Special Prosecutions Bureau, tracked the activities of individuals scanning out inventory at the Howell garage and determined that the quantity of inventory scanned out by Deleeuw was in excess of needed bus repairs.

The indictment charges that from December, 2003 through December, 2004, Deleeuw, in his position as stock clerk, scanned out parts from the NJ TRANSIT Howell garage inventory and placed the parts for sale on eBay. Additionally, the indictment charged money laundering in that Deleeuw knowingly sold the stolen parts and then deposited cash proceeds from the sales into an account established in the name of an acquaintance. The investigation determined that the parts for sale on eBay included red and amber marker lamps, seals, sensors, silicone hoses, batteries, and at least one bus seat.

The investigation established an undercover web address, credit card and PayPal account in order to purchase items from Deleeuw’s eBay web page. On separate occasions in July, August, and September, 2004, undercover investigators purchased brake lights, turn signals, marker lights and silicone hoses via Deleeuw’s “Wackimac” and/or “Harradengarage” eBay web page. A comparison of serial numbers from the parts purchased via the eBay web page confirmed that the parts had been scanned out of the NJ TRANSIT Howell garage. It is charged that when Deleeuw learned that State and NJ TRANSIT investigators, armed with State Grand Jury subpoenas, were seeking various records and documents related to the alleged activity, he (Deleeuw) took steps to thwart the investigation by replacing stolen inventory and removing the stolen parts from the eBay web page.

Criminal Justice Director McKoy noted that the investigation by the Division of Criminal Justice Special Prosecutions Bureau and the NJ TRANSIT Police utilized undercover investigative techniques and other investigative procedures to document the alleged illegal activity. In the interest of investigative security and pursuant to established court requirements, the Division of Criminal Justice is limited in discussing specific details regarding the alleged illegal activity and investigative details.

“This type of corruption – the theft of government property – raises the cost of repair and maintenance of NJ TRANSIT vehicles,” said Director McKoy. “The Special Prosecutions Bureau targets fraud and corruption related to the procurement process by working with, and providing information to, New Jersey government officials so they can identify and report procurement fraud and theft.”

Det. Sgt. Ed Iandoli of the NJ TRANSIT Police Department aggressively pursued the investigation from beginning to end. Deputy Attorney General Susan Kase and State Investigator Daniel O’Keeffe of the Division of Criminal Justice – Special Prosecutions Bureau coordinated the investigation. DAG Kase presented the case to the State Grand Jury.

The indictment was handed-up to Mercer County Superior Court Judge Maria Marinari Sypek on April 12. The defendant will be issued a complaint summons requiring his appearance in Monmouth County Superior Court at a future date for arraignment and bail.

The defendant is presumed innocent of the charges unless and until proven guilty in a court of law. A copy of the State Grand Jury indictment is available via the Division of Criminal Justice Web Page at www.njdcj.org.

And those plane tickets that you got cheap on EBay…

More Indictments In Southwest Air Ticket Scheme[4]

United States Attorney Johnny Sutton announced the federal indictment this morning of ten individuals on charges of conspiracy to commit wire fraud and aiding and abetting the crime of wire fraud.

The indictment, returned by a federal grand jury seated in San Antonio, alleges that the defendants were part of a ticket distribution scheme masterminded by Althea Jackson and James Jackson.

According to the indictment, Althea Jackson, while employed as an administrative assistant in the executive offices of Southwest Airlines, ordered Southwest Airlines Non Revenue Must Ride (NRMR) tickets from the ticketing department. These tickets were supposed to be used for the purpose of thanking Southwest passengers who assisted flight crews in the performance of their in-flight duties, including rendering aid to passengers who sustained injuries or became ill while onboard a Southwest Airlines flight.

Rather than following established Airline protocol and mailing NRMR tickets along with a letter of appreciation to deserving passengers, Althea Jackson, fraudulently obtained these NRMR tickets and kept them for her own purposes.

The indictment states that the Jacksons created an informal distribution system through friends, relatives, acquaintances and James Jackson’s co-workers at the Bexar County Justice Center where he was employed as a deputy sheriff. The Jacksons used this distribution system for financial gain by selling Southwest Airlines NRMR tickets at prices that were substantially less than the price that Southwest could command for the same ticket in the market place.

Over 5,600 of these NRMR tickets were acquired fraudulently by Althea Jackson and distributed by her and according to the indictment, those co-conspirators who were named today.

The indictment further alleges that in the course of the distribution of the stolen NRMR tickets, Althea Jackson and James Jackson cautioned the defendants and others to whom they distributed the stolen NRMR tickets that they must never tell Southwest Airlines personnel that the NRMR tickets had in fact been purchased.

The Jacksons “schooled” recipients of the NRMR tickets to explain falsely that the recipient had been given the NRMR ticket by Southwest because the recipient had been inconvenienced in some way by the airline. The Jacksons suggested that this “inconvenience” could include being “bumped” from a Southwest flight or for having luggage lost.

Persons to whom the Jacksons distributed the NRMR tickets also were told that they could explain, falsely, that the recipient had assisted a member of a Southwest flight crew in a medical or other emergency and had been given the NRMR ticket by the airline as a token of the airline’s gratitude.

The Jacksons and the persons to whom the Jacksons distributed stolen NRMR tickets, including the Defendants named today, knew that all of these explanations were false, and as such, were part of the conspirators’ scheme to defraud Southwest Airlines of the value of air travel and the revenue from air travel to which Southwest Airlines was otherwise entitled.

 

Asset Requisitions & Transfers

An asset requisition is a request from a manager or employee to purchase an asset. And, commonly, in order to get the purchase cleared through management, the requestor has to show that they received three competitive bids for the item.  If employees are given leeway on how to spend the organization’s money or where to send or transfer assets, the employee could doctor the documentation and hire whoever they please.

In response to employee complaints about the burden of the bureaucracy and paperwork required to make a purchase, many governments hand credit cards, or in government terms “purchasing cards,” to their employees.  And that causes all sorts of problems! The controls have been removed to make things easier for employees, but removing controls also makes stealing easier.

Here is an audit report summary from the GAO about the use of purchasing cards at the Department of Human Services.  I understand that they are great tennis players.

Purchase Cards: Control Weaknesses Leave DHS Highly Vulnerable to Fraudulent, Improper, and Abusive Activity[5]

In the wake of the 2005 hurricanes in the Gulf Region, GAO and the Department of Homeland Security Office of Inspector General (DHS OIG) initiated a number of audits and investigations addressing the federal government’s response to those events. On July 19, 2006, GAO testified on the results of its purchase card work. This report summarizes the testimony and provides recommendations. Department of Homeland Security (DHS) cardholders made thousands of transactions related to hurricane relief operations. GAO analyzed transactions between June and November of 2005 to determine if (1) DHS’s control environment and management of purchase card usage were effective; (2) DHS’s key internal control activities operated effectively and provided reasonable assurance that purchase cards were used appropriately; and (3) potentially fraudulent, improper, and abusive purchase card activity existed at DHS.

A weak control environment and breakdowns in key controls exposed DHS to fraud and abuse in its use of the purchase card. While DHS’s draft Purchase Card Manual generally contained effective control procedures, it was not finalized due to a lack of leadership by the Chief Financial Officer in resolving disagreements over its implementation (sic). This led to DHS cardholders following different procedures. Inadequate staffing, insufficient training, and ineffective monitoring, along with inconsistent purchase card policies (sic) contributed to a weak control environment and breakdowns in specific key controls. GAO and DHS OIG found a lack of documentation that key purchase card internal controls were performed. Based on a statistical sample, GAO and DHS OIG estimated that 45 percent of DHS’s purchase card transactions were not properly authorized, 63 percent did not have evidence that the goods or services were received, and 53 percent did not give priority to designated procurement sources. GAO and DHS OIG also found cardholders who failed to dispute improper charges, which resulted in losses to the federal government. Because of the urgent needs caused by the hurricanes, DHS made a number of noncompetitive purchase card acquisitions. GAO recognizes that DHS had the authority to make noncompetitive purchases; however, GAO found transactions where DHS cardholders could have exercised greater prudence without jeopardizing relief efforts. The weak control environment and ineffective internal control activities allowed potentially fraudulent, improper, and abusive or questionable transactions to occur. Although this work was not designed to identify, and we cannot determine the full extent of fraud, waste, and abuse, GAO and the DHS OIG identified numerous examples of potentially fraudulent, improper, and abusive or questionable transactions. This report lists examples of potentially fraudulent activity related to items acquired with DHS purchase cards. In addition, poor control over accountable property acquired with purchase cards may have resulted in lost or misappropriated assets. GAO and DHS OIG also found examples of improper use of the purchase card such as the use of convenience checks to pay $460,000 for pre-packaged meals. Other instances of abusive or questionable transactions included the purchase of a beer brewing kit, a 63-inch plasma television costing $8,000 which was found unused in its original box 6 months after being purchased, and tens of thousands of dollars for training at golf and tennis resorts. GAO referred cardholders responsible for many of these and other purchases to DHS management for administrative action.

Recommendations for Executive Action

Recommendation: To provide reasonable assurance that fraud, waste, and abuse related to DHS’s purchase card program are minimized and that government assets acquired with purchase cards are controlled, the Secretary of DHS should develop policies and procedures to limit approving officials’ span of control. The number of cardholders and card accounts that any one approving official is responsible for should be reasonable and should be established in consideration of the approving official’s other responsibilities. In addition, approving officials should have an appropriate number of transactions so that they may conduct a thorough and proper review of supporting documentation for each transaction.

Agency Affected: Department of Homeland Security

Status: Closed – implemented

Comments: The DHS Purchase Card Manual published in November 2006 included policies and procedures to limit approving officials’ spans of control and to ensure approving officials have an appropriate number of transactions so that they can conduct a thorough and proper review of supporting documentation for each transaction. Specifically, language regarding span of control in the 2006 Purchase Card Manual stated that organizational program coordinators (OPCs) would determine the actual number of cardholders managed by each approving official (AO) and that each AO would provide approval, validation, oversight, and monitoring of purchase card activity over their designated cardholders. The manual stated that a single individual may not be an AO for more than 7 cardholders, or approve more than 300 transactions a month on a regular basis. Subsequent versions of the DHS Purchase Card Manual that were published in 2008 and most recently in October 2009 contain these same requirements.

Recommendation: To provide reasonable assurance that fraud, waste, and abuse related to DHS’s purchase card program are minimized and that government assets acquired with purchase cards are controlled, the Secretary of DHS should adopt prudent purchasing practices by entering into arrangements with dependable sources in the government or vendors who can provide reasonable pricing for specific goods and services with a foreseeable demand in the event of an emergency. In anticipation of future emergencies, DHS should identify specific sources in the federal government or vendors in the private sector that can reliably supply the necessary goods and services for DHS to accomplish its mission in emergency situations. In addition, DHS should, in the case of vendors in the private sector, negotiate pricing and delivery terms with these sources using the federal government’s substantial purchasing power so that in a time of crisis DHS will be able to efficiently obtain the necessary goods and services.

Agency Affected: Department of Homeland Security

Status: Closed – implemented

Comments: DHS concurred with the recommendation to adopt prudent purchasing practices through arrangements with dependable government sources and/or private-sector vendors. The agency began a re-tooling effort to establish contractual relationships for known emergency supplies and services prior to a disaster so there would be fewer unplanned transactions. It developed procedures to standardize the procurement process for emergency requirements using required sources of supply, instituted training programs consistent with the new procedures, and provided specific information to contracting personnel on contractual vehicles to be used for emergency contracting situations. For example, in FY 2008, DHS developed the FEMA Disaster Plan for Purchase Card Usage which sets out standard operating procedures for purchase card use during a presidential emergency or disaster declaration to ensure that policies and procedures are consistently applied and acquisitions are made in compliance with federal acquisition regulations. Also in 2008, DHS’s Strategic Sourcing Office retracted its mandate for ordering certain supplies and services from one designated single source in order to allow DHS customers to use multiple ordering mediums for commonly purchased supplies/services, and emphasized the use of DHS blanket purchase agreements, wherever possible, to achieve more favorable prices.

Recommendation: To provide reasonable assurance that fraud, waste, and abuse related to DHS’s purchase card program are minimized and that government assets acquired with purchase cards are controlled, the Secretary of DHS should conduct a review to determine if adequate resources are devoted to administering, maintaining, and enforcing the purchase card program at both the agency level and the organizational element level. DHS should further develop specific oversight responsibilities that need to be carried out at both the agency level and at the organizational element level.

Agency Affected: Department of Homeland Security

Status: Closed – implemented

Comments: DHS concurred with this recommendation and indicated the Office of the Chief Financial Officer (CFO) would conduct reviews to determine if adequate resources are devoted to the purchase card program at both the agency and component level and develop oversight responsibilities for the program. In May 2007, the CFO conducted an organizational design and leading practice study of the Office of Financial Management. The study resulted in increasing staff resources to the Department’s Charge Card Program. In addition, an Internal Control Division was established to dedicate staff towards improving Department-wide internal control, including controls over purchase cards. In FY 2008 and 2009, the Internal Control Division and Office of Financial Management executed internal control tools to assess purchase and other charge card programs to support the implementation and promotion of charge card policies. Development of an overall Charge Card Management Plan has included establishing a key internal control checklist for purchase cards, using the checklist to complete annual reviews and assessments of purchase card controls for each DHS component agency, statistical sampling of each component’s card transactions, and post payment audit procedures to improve monitoring and oversight of transactions for fraud, waste, and abuse.

Recommendation: To provide reasonable assurance that fraud, waste, and abuse related to DHS’s purchase card program are minimized and that government assets acquired with purchase cards are controlled, the Secretary of DHS should improve the existing electronic systems to allow those with oversight responsibilities the ability to determine if cardholders and approving officials performed their reconciliation and certifying duties in a meaningful way.

Agency Affected: Department of Homeland Security

Status: Closed – implemented

Comments: DHS concurred with the recommendation to improve the existing electronic systems to allow better oversight of the reconciliation and certifying duties conducted by cardholders and approving officials. At the time, under SmartPay1, DHS worked with then-contractor U.S. Bank to improve the existing electronic system structure for reporting and oversight. Currently, under the SmartPay2 program, DHS’s contractor, J.P. Morgan Chase, provides PaymentNet, an electronic bankcard transaction and management system that allows for oversight of the review and approval process. Of particular relevance, PaymentNet has a Certification Report, which identifies cardholders and approving officials that have not reviewed and approved transactions in the PaymentNet system. By enhancing the capabilities of their purchase card management system, DHS can now fully access and review the reconciliation and certification activities of cardholders and approving officials.

Recommendation: To provide reasonable assurance that fraud, waste, and abuse related to DHS’s purchase card program are minimized and that government assets acquired with purchase cards are controlled, the Secretary of DHS should implement changes to DHS’s draft Purchase Card Manual to include policies and procedures addressing the four areas detailed below. After implementing the changes, the Purchase Card Manual should be finalized agencywide. In regards to training, DHS should establish policies and procedures that document that all cardholders have completed the appropriate training. The documentation should include the date of the training, a description of the training, and the name of the recipient of the training. In regards to independent receipt and acceptance, DHS should develop policies and procedures for the performance and documentation of independent receipt and acceptance attesting to the receipt of goods or the complete rendering of services. This documentation would be maintained along with other required documentation supporting each transaction. In regards to accountable property, DHS should develop policies and procedures to provide reasonable assurance that highly pilferable assets such as laptop computers, cell phones, personal digital assistants, memory storage devices, and other pilferable property acquired with a purchase card are entered into an accountable property system immediately after being received. Cardholders should be required to contact accountable property officers (or others acting in a similar capacity) before acquiring accountable property, or within a reasonable time thereafter, so that the property is properly bar coded and tracked in the property system. This should be completed prior to placement of the asset in service. The property system should include accurate information on the location of the asset, the individual responsible for the asset, the manufacturer’s serial number, as well as the agency’s unique identification code for the asset (e.g., a bar code). And finally, in regards to disciplinary or administrative actions, DHS should develop a range of potential disciplinary and administrative actions that may occur as a result of a cardholder or others failing to comply with the policies and procedures in the Purchase Card Manual.

Agency Affected: Department of Homeland Security

Status: Closed – implemented

Comments: DHS concurred with this recommendation and, in November 2006, finalized and published the DHS Purchase Card Manual containing policies and procedures that addressed, among other areas, training, independent receipt and acceptance, accountable property, and disciplinary or administrative actions. For example, in requirements for training, the manual established that employees nominated to be either approving officials (AOs) or cardholders (CHs) must complete approved purchase card training prior to issuance of the purchase card or designation as an AO. Such training includes the GSA on-line purchase card training program, supplemented by DHS-specific training, as well as annual refresher training. The manual also mandated targeted training to certain CHs and AOs needing purchase card authority above the micro-purchase threshold and/or using the purchase card as a payment mechanism against established contracts. Finally, the manual provided documentation requirements as a means to certify that individual CHs and AOs had completed their required training. The other three areas noted above were also adequately covered in the manual. Subsequent revisions of the manual were completed in 2008, and again in October 2009. Each revision reiterated and, in some areas, strengthened the policy and procedures established in November 2006.

Recommendation: To provide reasonable assurance that fraud, waste, and abuse related to DHS’s purchase card program are minimized and that government assets acquired with purchase cards are controlled, the Secretary of DHS should continuously monitor and review open accounts to provide reasonable assurance that only cardholders who have a documented need to acquire items for the government are issued a purchase card. Instances where cards have not been used for over a year should be analyzed to determine if a valid need for the card exists. If a valid need can not be established, the purchase card should be suspended or the account closed.

Agency Affected: Department of Homeland Security

Status: Closed – implemented

Comments: DHS concurred with the recommendation concerning the monitoring and reviewing of open accounts and reported in December 2006 that it had closed out about 2,000 cards. Subsequently, DHS transitioned to the current purchase card reporting system, SmartPay2, and has continued to review all open accounts, closing those accounts that were no longer active or necessary. DHS currently uses several reports to continuously monitor and review all open accounts—an Account Activity Report that identifies accounts with no activity and an Account Renewal Report that identifies the “date last used” for each account. Both of these reports are generated in real time by the system and can be accessed at any time by the purchase card program coordinators for card reissuance and/or cancellation. These reports are accessed and reviewed at least monthly, but they can be reviewed more frequently to meet program needs.

False Sales & Shipping

The guys at the loading dock are pretty powerful!  See this press release from the Atlanta FBI:

Army Sergeant Sentenced for Stealing Government Property, Reselling It Online[6]

Hairston Helped Sell Sensitive, Export-Controlled Devices to Private Individual Located in China.

RAYMOND HAIRSTON, 46, of Decatur, Georgia, was sentenced to prison today by Senior District Judge J. Owen Forrester for stealing thousands of dollars of Army property and reselling it on the Internet sales site eBay.

United States Attorney Sally Quillian Yates said of the case, “Propelled by greed, this defendant exposed controlled military technology to unknown individuals in foreign countries. Fortunately, acting on a tip from a manufacturer, the Army and the FBI disrupted the defendant’s scheme before he and his partner managed to acquire and export additional sensitive items. At a time when their fellow soldiers are risking their lives in Afghanistan, it is disturbing that these men would steal from the Army to make a quick dollar.”

HAIRSTON was sentenced to serve one year and three months in federal prison, to be followed by three years of supervised release. HAIRSTON will also be required to pay restitution of approximately $75,000 to the United States Army for everything he sold online. HAIRSTON was also ordered to perform 60 hours of community service.

According to United States Attorney Yates, the charges and other information presented in court: In the summer of 2008, HAIRSTON and another sergeant based at the United States Army’s Fort McPherson near Atlanta learned of an off-base property depot where “frustrated mail” was kept. “Frustrated mail” is defined as letters, packages, and other shipments sent through military channels that ultimately proves undeliverable. This includes certain shipments of equipment—such as the typically standard military kit, including boots, belts, vests, canteens, etc. If the shipments are not claimed within a year, the property is supposed to be reclaimed by the Army so that it can be re-used or recycled.

HAIRSTON and his partner, seeing a profit opportunity, began diverting these items from the depot and selling them on eBay, splitting the proceeds 50-50. Most of what they sold consisted of this same military kit, and most buyers were apparent military enthusiasts here in the United States. Towards the end of 2008, the pair was able to acquire three full sets and one partial set of sensitive thermal imaging equipment at the depot. These thermal imaging systems are used with certain military assault weapons and are designed to enable soldiers to engage targets in total darkness (as opposed to regular night-vision devices, which require some light source, no matter how faint). After determining what the items were, the pair nonetheless marketed them on eBay, ultimately selling the three complete sets to different buyers in Italy, Japan, and China, netting them thousands of dollars.

The case broke when the manufacturer of the thermal imaging systems noticed one of its kits for sale on eBay. Aware that its product contained controlled technology that could not legally be sold on the open market, the manufacturer contacted the Army. The Army in turn worked with the FBI to identify the users of the suspect eBay accounts, which investigators found to be HAIRSTON and his fellow sergeant. When confronted with these facts, both HAIRSTON and his co-worker admitted their involvement in the theft and export scheme.

HAIRSTON’s fellow sergeant, Erick Rodriguez, 27, of College Park, Georgia, was prosecuted through the military system, court-martialed and is currently serving a one year and three-month prison sentence in military custody.

This case was investigated by the Federal Bureau of Investigation and the Criminal Investigative Division of the United States Army.

Assistant United States Attorney Robert McBurney prosecuted the case.

 

Purchasing & Receiving

This is a good example of an employee who starts out with good intentions, but then takes it too far.

Fifty-year-old Melody A. Breckenridge, a receiving clerk at Target, stole more than $120,000 in merchandise on the loading docks.  She passed the goods on to her friend, Damon C. Davidson, for delivery to one of eight storage locations.

Authorities believe that Breckenridge and Davidson donated salvage or damaged pet supplies and food from the docks to a local pet shelter!  They think the animal lovers started out believing they were doing good deeds, stealing from the corporation and giving to the … um … poor dogs and cats? But, having committed their crimes with ease, the women figured that they could easily make a profit by selling the damaged items. Over a period of 18 months, almost weekly, they loaded into vehicles the household goods they collected. Items that they stole included pricey vacuum cleaners, paper products and electronics, televisions, and mini-refrigerators.[7]

Unconcealed Larceny

In this fraud, the fraudster takes property from the company premises without attempting to conceal it in the books and records.  Bold!

Former Chihuly Company Employee Charged for Stealing $3 Million in Artwork[8]

The following release was issued by the Pierce County Prosecuting Attorney’s Office.

TACOMA, WA—Today Pierce County Prosecutor Mark Lindquist charged a former Chihuly Company employee for stealing more than $3 million worth of artwork by Tacoma glass artist Dale Chihuly. Christopher Robert Kaul, 38, has been charged with theft in the first degree and trafficking stolen property in the first degree.

In September 2014, an art appraiser contacted the Chihuly Company regarding three pieces of artwork that were brought in for appraisal. Employees determined the pieces were missing from the company’s warehouse. An audit was conducted, which found that 90 pieces were missing. The total value is more than $3 million.

The company tracked the stolen items back to Kaul, who had sold them for a small fraction of their worth. Kaul told police he was addicted to pills and needed drug money.

“We’ve seen this story before—an employee is hooked on drugs and steals from his boss,” said Prosecutor Mark Lindquist. “The twist here is the boss is a world famous artist.”

A private investigator, hired by the Chihuly Company, has recovered nearly half of the stolen artwork from buyers who returned the items.

“If a deal sounds too good to be true,” said Lindquist, “it probably is.”

A summons has been issued for Kaul to appear for arraignment on June 15, 2015 at 8:30 a.m. in room 270 of the County-City Building in Tacoma.

Charges are only allegations and a person is presumed innocent unless he or she is proven guilty beyond a reasonable doubt.

This case is being investigated by the FBI.


[1] Frank X. Mullen Jr. “Panther Valley embezzlement case could reach $2 million in losses,” Reno Gazette Journal. December 21, 2008.
[2] “Administrator admits to stealing Navy Computers.” Government Computer News. October 3, 2008.
[3] New Jersey State. Division of Criminal Justice. Attorney General’s Division Of Criminal Justice Charges NJ Transit Employee With Stealing Inventory And Selling Replacement Bus Parts Via The Internet NJ Transit. Press release. Trenton: State of New Jersey. April 13, 2005.
[4] United States. Department of Justice. More Indictments In Southwest Air Ticket Scheme. Press release. March 4, 2009.
[5] United States. Govt. Accountability Office. Purchase Cards: Control Weaknesses Leave DHS Highly Vulnerable to Fraudulent, Improper, and Abusive Activity. September 28, 2006. GAO-06-1117.
[6] Georgia State. Department of Justice. Army Sergeant Sentenced for Stealing Government Property, Reselling It Online. Press Release. FBI. Atlanta: State of Georgia. November 18, 2010.
[7] Christine Vendel. “Target worker accused of $120,000 in thefts.” Kansas City Star. March 17, 2010.
[8] Washington State. Pierce County Prosecuting Attorney’s Office.Former Chihuly Company Employee Charged for Stealing $3 Million in Artwork. FBI Seattle. June 2, 2015.
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