Tag Archives: business fraud

When mail fraud kills

Danger-signOn September 21, 2015, Stewart Parnell, of Lynchburg, Virginia, was sentenced to 28 years in prison for having knowingly introduced mis-branded, salmonella-tainted peanuts and peanut products into interstate commerce.

The sentence was groundbreaking. It represented the toughest penalty ever handed down for a corporate executive in a food poisoning case.

Officially, the convictions of Parnell, his brother, Michael, and other executives of the Peanut Corporation of America (PCA), were mostly for mail fraud and wire fraud, as well as conspiracy to profit by introducing adulterated peanuts and peanut products into the food supply.

This particular consumer and business fraud resulted in more than 700 reported cases of salmonella poisoning. Nine of the victims died. According to the Centers for Disease Control and Prevention, the actual number of cases of salmonella poisoning cases linked directly to PCA probably exceeded 22,000.

Why mail and wire fraud?

What many consumers may not know is that both mail fraud and wire fraud statutes are key tools in the ongoing battle to keep all of us from being victimized by fraud–or in this case, being sickened or killed.  In fact, “mail fraud” has been called the federal government’s “first line of defense” against fraud. Here are the key differences between them:

Mail fraud–Mail fraud involves participating in a scheme to obtain money or property by means of false pretenses (among other possible means)–in which the scheme is carried out by sending fraudulent materials via the U.S. Postal Service, or any private or commercial interstate carrier, such as FedEx, or UPS.

Parnell and other executives of the Peanut Corporation of America, fabricated certificates of analysis (COAs) that accompanied shipments of peanut products. They falsely stated that the food they were shipping was free of pathogens. In fact, there had been no testing of some of the peanut products. Worse, a number of lab tests had showed that salmonella pathogens were present. The  COAs accompanying the shipments had been falsified.

The mail fraud statute, in particular, has been broadened in recent years. You’re now likely to see “mail fraud” and “wire fraud” included among the charges and convictions in dozens of types of crimes. Here, from the U.S. Postal Inspection Service, are 32 examples of common scams that fall under the heading of mail fraud.

Wire fraud–Wire fraud occurs when when the information used to deceive victims is communicated by phone, radio, TV, or the use of an e-mail server.

To cite just one of many examples of wire fraud committed in this case, Parnell received an e-mail from the plant manager that some of the peanut products about to be shipped to a customer were tainted. Parnell’s reply: “Just ship it.”

There’s no question that under the right circumstances, mail fraud or wire fraud can be used to mislead and steal from any of us.

Hopefully, now that Stewart Parnell and the others at PCA are going to jail, mail fraud involving food products that can poison or even kill us will be less common in the future.

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Small business owners’ greatest cybersecurity threat

Unhappy-employee

When most people hear about businesses that have suffered data breaches and other cyber attacks, they assume that the company has been victimized by hackers from Eastern Europe or some other part of the world.

The truth: The hack was most likely committed by an unhappy employee.

Douglas Nadjari, a partner at Ruskin Moscou Faltischek, a Uniondale law firm, recently participated in a data security panel hosted by the Long Island Association.

“Most breaches are . . . internal threats; we’re not talking about the Russians,” Nadjari said. “It is a disgruntled employee or an entrepreneurial employee, somebody who wants to take your data, your client list, your propriety information and they want to use it for themselves.”

As data breaches become more commonplace and costly, businesses need to be proactive about protecting themselves and planning what to do if and when they’re hacked.

Some key panel takeaways, according to the Newsday feature on the panel:

  • Assign employee roles and responsibilities should a hack occur
  • Find out how much damage has been done before you go public
  • Identify all stakeholders–e.g., employees, customers, vendors, legislators; assure all of them that data safety has been restored;
  • Provide for phone answering services to handle calls that may come in
  • Offer free credit monitoring services to customers or clients

Fraud comes in many forms, including embezzlement by trusted employees, managers, and advisors. Preventing it becomes more important every day. Please contact us to see how we can help you and/or your clients and your business.

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Fear of cyberfraud is increasing this holiday season

Home-Depot-e-mail-110814

The e-mail message above arrived this morning. It refers to the theft of 53 million e-mail addresses that Home Depot disclosed on Friday, November 7th.

Other e-mails just like it seem to be coming with frightening frequency.

For the past 14 years, identity theft has been the top consumer complaint filed with the FTC. Credit card fraud cost about $11 billion in 2012. And the total cost of identity theft in the U.S. now exceeds $18 billion, depending on whose statistics you read.

According to Travelers, 62% of American consumers worry about identity theft. Fear of losing personal information is now second only to fear of personal financial problems (68%). It’s also way ahead of concerns about personal safety and risk (44%).

We all have good reason to worry about having our personal data compromised. The list of name brand retailers and banks that have been hit by hackers is now too long to remember. Among them: Target, Neiman Marcus, Michael’s, JP Morgan Chase, and KMart.

Huge losses for retailers

While about 11% of consumers report that they hardly worry about shopping at stores that have experienced data breaches, many more are less willing to take the risk of being ripped off. They say they will shop elsewhere if they have the opportunity to do so, according to the same survey, which was conducted on behalf of creditcard.com.

The stakes are high. Banks, other issuers of credit cards, and retailers understandably are racing to improve data security. The Project Management Institute (PMI) reports that financial institutions have spent more than $200 million solely to issue and mail new credit cards to victimized Target customers.

A bit of hope

One result of the recent epidemic of credit card fraud is that some change is on its way. By the end of 2015, we can expect improved new technology that will feature embedded microchips in credit cards (often called EMV cards, for “Europay, MasterCard, and Visa.”) These will replace cards with the magnetic strips that we now swipe at checkout counters. Use of EMV cards is already reducing credit card fraud in Europe and Australia.

In the meantime, however, credit card fraud is widespread and ever-more costly. And experts like Randy Vanderhoof, of the Smart Card Alliance, predict that it’s only going to become much worse.

Helping you and your clients avoid fraud

In coming posts, we’ll continue our look at cyberfraud and identity theft and at the most effective ways to protect yourself and your clients from becoming victims.

We’ll also continue to address how to protect businesses from many of the insidious types of fraud that take place right under the noses of unsuspecting business owners and executives–every day of the year.

Have you or one of your clients been a victim of credit card fraud? If so, do you have any advice to share?

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Embezzlement: Business and personal betrayal

Woman-hiding-piggy-bank-resized-revAs a forensic accountant, I’ve uncovered a lot of business embezzlement and theft. Many of the people who committed these crimes had unfettered access to company books, checks, and bank accounts. Most were men and women whom owners or executives had always trusted completely.

I just read a recent article in a California newspaper about an embezzlement case that gives new meaning to the word “betrayal.” It also validates the wisdom of the old Russian proverb, “Trust, but verify.”

In this case, Sue Tashima had been a trusted bookkeeper at Simply Smashing, an Oakhurst, California, promotional products business. Her employers, Tim and Barbara Fruehe, had considered Tashima to be “like family.” Tashima had offered to babysit for Tim’s kids, bought gifts for his family, and gave Tim and Barbara a present when they got married in 2009.

Between 2007 and 2012, Sue Tashima stole more than $325,000 from them.

Business losses lead to personal losses

Over the years, Tashima handled Simply Smashing’s bills, books, and bank account. The company’s financial situation grew steadily worse. It finally got so bad that in order to keep the business open, the Fruehes had to sell their two homes and cash out 401Ks and IRAs–all on Tashima’s advice. They eventually were forced to file for Chapter 7 bankruptcy protection.

Fruehe shared that during the time the business was barely existing, Tashima was “very sympathetic” to the couple’s troubles. She told them she would do everything she could to help them. She also offered to cut her hours and take a part-time job in Fresno.

So from 2010 to 2012, Tashima continued to work part-time at Simply Smashing. She also took a job at The CVI Group, a Fresno real estate investment company.

Ironically, it wasn’t until mid-2013 that Fruehe learned of the embezzlement. He got a call from a detective from the Fresno police department’s financial crimes unit. The detective told Fruehe that she was investigating a $360,000 embezzlement case at The CVI Group and that Tashima was involved. During her investigation, the detective had found canceled checks from Simply Smashing.

Locking the barn–long after the horse is stolen

At that point, Fruehe began looking at his company’s financial records. Within a few weeks, he found $325,000 in theft, as well as forgeries and altered bank statements. In addition, he learned that his company had a $400,000 judgment against it from an equipment leasing company. The Fruehes also owed $13,000 in unpaid property taxes, and more than $200,000 to suppliers.

Fruehe said he decided to go public with his story so other small businesses can be aware of what can happen to them. His advice: “No matter how good you think your bookkeeper is, or how much you trust them, you’d better be routinely checking your bank statements…If we had just implemented a few theft prevention policies and procedures — it would have saved both companies a lot of money.”

Of Tashima, Fruehe said, “She has no remorse for what she did to me, my family, my employees, our company…We have all suffered. She was evil hiding behind a big smile.”

Could you be at risk?

Look at your own business–or your clients’ businesses. Who sends out invoices? Pays bills? Records payments? Makes bank deposits? Handles other financial transactions?

Having only one trusted person take care of all of these functions is courting potential disaster. That trusted person could turn out to be a version of Sue Tashima.

What strategies do you have in place to avoid–or help your clients avoid–being victimized by embezzlement and other types of fraud?

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Fraud in American business is becoming more common

PwC-chart-on-US-industry-2014-fraud-stats

You probably believe that your business is safe from economic crime–that there’s no way you’d ever suffer financial loss due to embezzlement or other types of fraud.

If you’re confident that you needn’t worry about fraud, you may find some new statistics a bit unnerving.

PricewaterhouseCoopers recently revealed the results of a survey on economic crime in the U.S.and around the world. The study showed that almost half of U.S. businesses, 45%, report that they have been victims of economic crime. Equally frightening according to the new PwC study, more than half of those who reported having been victimized, said the number of occurrences of fraud have increased.

Who’s most at risk? As the chart above shows, financial businesses and companies in retail and other consumer industries are most vulnerable. Following closely are businesses in the communications sector. However, looking at the same chart, it’s hard to ignore that the range of victimized industries is quite wide.

Interestingly, PwC noted, more than twice as much fraud is now being detected by external  measures than was the case in 2011.

Understanding the real likelihood of being victimized by economic crime is a good first step toward detecting and preventing fraud–and ensuring that your own company doesn’t become a statistic in the next survey.

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