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Who Runs Things?

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James Petrozzello

The tone at the top of an organization is vitally important. If the people running things are behaving in an unethical manner, how can one expect the rest of the firm to operate any better? If you are working at a company and you get the message that leadership is for those who operate without regard to the rules, then wouldn’t the probability be high that you would either leave or start breaking the rules yourself? Often when a leader of a company is caught breaking the law, stories follow about a culture of bad behavior at that company.

Craig Haber became a partner, based in New York, at Grant Thornton in 1993. In 2004, he opened a business checking account in the name of a company with a name very similar to Grant Thornton. Then, between 2004 and July 2012, Haber deposited $3.97 million in checks made out to Grant Thornton into the fraudulent account that he had opened. That is eight years of funneling almost $4 million in company funds into his personal account. How Haber managed to do this shows how he got the opportunity to take advantage of weaknesses in the Grant Thornton control system in order to perpetrate his fraud.

When Grant Thornton sends out bills to its clients, it attaches a page to the bill with instructions on how to either wire money into their account or send a check to their Chicago office, which is where their head office and billing department are located. Beginning in 2004, Haber would send billing statements to some clients and, instead of the usual payment instruction sheet, Haber instructed the clients to send payments to “Craig B. Haber”, in care of Grant Thornton, at the Grant Thornton New York offices. He also sent these payment instructions to some clients via email. When he received these payments, he deposited the bulk of them into the fraudulent account that he had opened. He got around the discrepancies by telling Grant Thornton that he had collected lower fees than what he actually collected.

It appears that Craig Haber had too much access to the billing system. In a company, seniority is no reason for reduced controls. Seniority should be a greater incentive for implantation of controls. Because it tends to be more difficult for an employee to say no to a higher up in a company, it is important that a system is built that says no on the employee’s behalf. All bills should have come from the billing department and the billing department should have sent clients billing statements detailing a running balance detailing payments received over a period of time. If that had been the case, some clients would have contacted Grant Thornton to find out why some of their payments were not reflected on their statement.

Grant Thornton should also have worked to limit what payments went to the partners, instead of being sent directly to the billing department. It is a challenge, but an occasionally reminding a client to send payments to the Chicago office may have gone a long way in reducing how much was stolen by Haber.

The fraud of almost $4 million translates into many billing hours that Haber was short on. I am not sure how he explained this shortfall but there should be a way to verify this for partners, in the same way that, I am sure, there is a way to verify billable hours for other employees of Grant Thornton.

Craig Haber received the Grant Thornton payments, which he then redirected to his personal account, via the US Postal Service. Therefore, when Grant Thornton discovered the fraud and reported it, the investigation was carried out by the US Postal Inspection Service and headed by Postal Inspector Melissa Atkin. True to the elements of the fraud triangle, Haber claimed that he started defrauding Grant Thornton because of financial pressure and, as you can see, he took full advantage of the opportunity to take money from the company. Haber was charged with and convicted of mail fraud and faces both a fine and prison time.

Being at the top in his firm did not stop Haber from committing fraud and perhaps being at the top of his firm meant that he was able to perpetrate his fraud without detection for longer. The Association of Certified Fraud Examiners (ACFE) has found that fraud by those higher up in an organization tends to be greater in value and to go on for a longer period of time. Being a CPA, who is supposed to practice according to a Code of Professional Conduct and uphold certain ethical standards, makes Haber’s crime even more disappointing. He stands to lose his CPA license, in addition to the jail time and fines. I would not be surprised if Craig Haber’s behavior had ripple effects among those that he supervised and dealt with, including a decrease in morale, cynicism about adherence to the code of conduct for CPAs and perhaps even bad behavior. If the people in charge are not minding the store, who will?

UPDATE

On March 12, 2014, Craig Haber was sentenced to 4 1/2 years in prison for stealing almost $4 million from Grant Thornton. During the time he was stealing that money, he earned nearly $6.9 million. Just goes to show that some people never have enough money. Now he gets to think about whether those millions were worth it. I, personally, would say no.

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D.O.J. Enforcement Where We Are

It’s In The Mail

ImageIn one of my previous lives, I worked for a company that, among its various business ventures, owned a mailboxes service. I would pop in occasionally to see how this and other nearby businesses were doing and, on one such visit, I found myself in the middle of an adventure. In the morning, shortly after the store opened, a man walked in and flashed his very impressive-looking badge. He explained that a woman was going to come in later in the day to pick up a package and that he needed to be present when this happened. Unsure what was going on, yet thoroughly impressed by the badge, the store’s staff agreed to let the man set himself up behind the counter, in wait for the woman. In no time, the man had settled himself in a chair, opened up a newspaper and blended into the scenery. A short while later, the store’s phone rang and one of the store’s employees answered a call for the woman they were waiting for. She asked if her package had arrived. Upon hearing that it had, she requested that someone bring it out to her car, as she was waiting outside the store. The employee explained that it was the store’s policy that all customers come in to pick up and sign for their own packages. After a short back and forth, he hung up the phone and a few minutes later a small woman in massive sunglasses walked in. The agent paid her no notice and appeared, instead, to be engrossed in a phone conversation with a friend. The woman signed for her package and turned to leave with it. As she did so, the agent whispered urgently into his phone and, suddenly, the mailboxes store turned into a scene straight out of the movies. Men in dark glasses, holding guns, burst in through the door, our agent behind the counter surged forward and, in no time, the woman was under arrest and her box was in their custody. Before he left, the agent explained that this woman was one of a group of people shipping some drug along the lines of PCP. Suffice to say, we were all pretty speechless and the most amazing thing of all? These guys worked for the US Postal Service. Yes, those folks who will let “Neither snow nor rain nor heat…” keep them from delivering your mail will not let crime hang out in their system either.

The United States Postal Inspection Service, founded by Benjamin Franklin, is the primary law enforcement arm of the US Postal Service and one of the oldest federal law enforcement agencies in the United States. Their goal is to protect against those who  “attack our nation’s postal system and misuse it to defraud, endanger, or otherwise threaten the American public.” You would be amazed how many criminals use the postal service as a conduit for perpetuating their crimes (using services such as UPS and FedEx for crimes that cross state lines is also covered by these laws). When Charles Ponzi was arrested for taking people’s money in a giant fraud that came to be known by his last name, the Ponzi Scheme, he was arrested by the US Postal Inspection Service because he had used the mail system to write to his investors, encouraging them to reinvest their funds.  He was charged with and went to jail for mail fraud.

If a person sends you mail in order to ensnare you in some kind of scam, to make an illegal delivery or to otherwise commit a crime, that is mail fraud. Conversely, if someone has scammed you and you end up sending that person money or some other item of value, that too is also considered mail fraud and that person can be prosecuted for it. Since a lot of mail fraud involves financial schemes, the work of financial forensics experts is quite important in the crime fighting work of the US Postal Inspection Service. If, for example, a person were running a pyramid scheme that involves people mailing in funds to invest in the scheme, a forensic accountant would be needed to track and follow the money trail and build a case against the criminal carrying out the scheme. Also, say you received a solicitation to send money to a fake charity and you sent payment in the mail. A forensic CPA’s skills would go a long way in exposing and putting a stop to the bad deeds of the fake charity.

The US Postal Service provides a very important service. It is well known that stealing mail is a federal crime but few realize just how far the US Postal Service and its law enforcement agents go to maintain the integrity of the postal service. Much trust is placed in those blue boxes and this is because of the work of these agents.