How To Get Charged With Federal Bank Fraud

Bank fraud is a generic term that defines a group of federal and state criminal white collar offenses all of which, simply put, have to do with stealing money from banks and other financial institutions.

Bank fraud charges may include misapplication, embezzlement, false entries in financial institution records, bribery, fraud, making false statements to procure loans, check kitting, bank officers taking out personal loans at preferential rates, computer crimes, and creating overdrafts.

Let’s consider each offense separately. Misapplication is an offense addressed by federal law 18 U.S.C. Sections 656, 657 that is one of the most widely used tools in bank fraud federal prosecutions. This crime involves willfully converting the funds to your own use, benefit or gain, or the use, benefit or gain of a third party.

Embezzlement is an offense very similar to misapplication and is governed by the same statute, 18 U.S.C. Sections 656, 657 that applies to an insider who embezzles funds or property of a financial institution or its holding company. In simple terms, embezzlement is ''the fraudulent appropriation of property by a person to whom such property has been entrusted, or into whose hands it has lawfully come.'' The most important element of this statute is that funds must have belonged to victim but the accused must have had lawful possession of the property.

Another bank fraud offense is False Entries in Financial Institution or Holding Company Records, regulated by 18 U.S.C. Sections 1005, 1006. Under this statute, it is a crime for bank employees to make any false entry in bank documents with the intent to defraud the bank. Violation of this law is punishable by a fine of up to $1 million, or imprisonment of up to 30 years, or both. To make their case under this law, the government must establish that (1) the entry is false; (2) the accused either personally made or caused the entry to be made; (3) the accused knew the entry was false when it was made; and (4) the accused intended that the entry injure or defraud the financial institution or holding company or deceive any officer of such institution, company or certain public officials. Section 1006 applies to insiders acting with the intent to defraud while Section 1005 applies to any unlawful participant acting with an intent to defraud.

Bribery (18 USC 215) is another federal bank fraud charge. The law makes it a crime to give, offer, or promise anything of value to anyone with intent to influence or reward a financial institution’s officer, director, employee, agent, or attorney in connection with any business or transaction of the institution. It is also a crime for an officer, director, employee, agent, or attorney of a financial institution to corruptly solicit or accept, or even agree to accept, anything of value from any person, with intent to be influenced or rewarded in connection with any business or transaction of the institution; The penalties for bribery are hefty: the fine of the greater of $1,000,000 or three times the value of the bribe, and/or imprisonment of up to 30 years. However, if the bribe is below $100, the fine is limited to $1,000 and prison term is limited to one year.

The bank fraud statute, 18 U.S.C. Section 1344 is very similar to the federal mail and wire fraud and make it a crime to “knowingly execute or attempt to execute a scheme or artifice to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any of the moneys or funds, credits, assets, securities, or other property owned by or under the custody or control of a financial institution”. Over the years since passing of this statute by Congress, this law has been used in prosecutions of virtually any type of fraudulent behavior that has to do with banks, including car title fraud, stolen or phony checks, credit card fraud, ATM fraud, stolen ATM cards, check kitting, etc. In one case, the defendant who participated in scheme of accumulating bank credit was convicted of bank fraud for falsifying income on credit card applications to increase the amount of credit.

Many bank fraud charges were brought for making false statements to procure loans 18 U.S.C. Section 1014. Under this statute, anyone who knowingly makes any false statement or report or who willfully overvalues collateral for the purpose of obtaining credit from a banking institution will be fined for up to $1,000.000 or imprisoned for up to 30 years.

One common bank fraud crime is a check ''kiting'' scheme, where one or more persons using checking accounts at two or more institutions systematically exchange checks of similar amounts. The scheme takes an advantage of the delay as the checks are cleared through the Federal Reserve System. As the result, there is an inflated and uncollected balance at the banks involved. While checks drawn against uncollected funds are in the clearing process, the participants in the scheme use the deposited but uncollected monies. Check kitting schemes do often result in prosecution under mail and wire fraud and bank fraud statutes.

Source: http://www.articlesbase.com/national,-state,-local-articles/how-ro-get-charged-with-federal-bank-fraud-527688.html

Tampa Bay Chapter

Dinner Meetings

January 13, 2009
"PBS&J Embezzlement Scheme"
Gary Jordan

February 10, 2009
"Medicaid Fraud"
Carol Conry, Lieutenant, Medical Fraud Control Unit, Office of Attorney General

March 10, 2009
"Contractor Fraud"
Richard B. Campbell, Esquire
Carey, O'Malley, Whitaker & Mueller, P.A. 

10th Annual Fraud & Computer Crimes Seminar

May 12-13, 2009
Ruth Eckerd Hall
Clearwater, Florida
1111 McMullen Booth Road
Clearwater, FL 33759

2008 - 2009
OFFICERS & DIRECTORS

PRESIDENT
Steve Hooper, CIA, CFE, CCSA, CGAP
Clerk of the Circuit Court Hillsborough County, FL
(813) 276-2029 x3703

VICE PRESIDENT
Christine Dever, CPA, CFE
City of Tampa
(813) 274-7166

SECRETARY
Ellen Wilcox, CFE
Florida Department of Law Enforcement
(727) 298-2482

TREASURER
Laura Krueger Brock, CPA, CFE
Kirkland, Russ, Murphy & Tapp, P.A.
(727) 572-1400

DIRECTOR
Mark Dubina, CFE
Florida Department of Law Enforcement
(813) 878-7366

DIRECTOR
Sharon Shaw, CFE
Tel: (727) 674-8399

DIRECTOR
Debbie Venanzio, CFE
Branch Banking & Trust Co.
Tel: (727) 302-5498

DIRECTOR
Bill Miles, CFE
Florida Department of Law Enforcement
Tel: (863) 701-1474

DIRECTOR
Gary Chapman, CIA, CGAP, CFE
City of Tampa
Tel: (813) 274-7163

CHAPTER TRAINING
Wayne Boytim, CFE
Retired
(813) 274-7167

News from the ACFE

2009 - 2010 Board of Regents Elections

The ACFE's Nominations Committee has selected six candidates to compete for two positions on the 2009 -2010 Board of Regents.  The board sets membership standards to promote professionalism and ensure the reputation of the CFE credential.  Online voting for CFE members begins November 1st and ends December 31. Click here to cast your vote VOTE NOW

Chapter News

CONGRATULATIONS TO CONSUELO HERRERA, CFE

Consuelo Herrera, one of our Certified Fraud Examiners, took the oath of loyalty to become a naturalized United States citizen on December 12, 2008. Although, Consuelo became an active member in 2008, she has been attending Chapter dinner meetings since 2006. The naturalization process took Consuelo over 8 years to complete. She passed two very comprehensive tests in English and Civics.

As for her new status, Consuelo said “I feel very blessed that this wonderful Country granted me the honor and privilege of becoming one of its citizens. I was overwhelmed by the emotion during the ceremony. It brought tears to my eyes when I realized the greatness of this event. I wish every American born does not take for granted the marvelous things that the United States of America offers. Attending a Citizenship ceremony could make a difference. Even when times are tough this Country is great! I am Proud to be an American and I will do my best to honor this privilege.”

Congratulations Consuelo.  We are proud of you!

TO ALL CHAPTER ASSOCIATES AND AFFILIATES

The Board wants to know if you are interested in obtaining the Certified Fraud Examiner designation.  If so, would you be willing to attend a CFE Exam Prep Course? If enough are interested, we will arrange a CFE Exam program and secure an instructor. Please email you name and contact information to: tampacfe@tampabaycfe.org to express your desire to participate.

Dinner Meeting News

Our next Dinner Meeting is scheduled for January 13, 2009

Our third dinner presentation of the year will be "PBS&J Embezzlement Scheme" by Gary Jordon, Post, Buckley, Schuh & Jernigan. PBS&J recently experienced a $36 million dollar fraud committed by its  former CFO and two other  former employees. Last month they were sentenced to the Federal Penitentiary. Gary Jordan , PBS&J's VP & Director of Internal Audit  will tell you how they did it, how they were caught and what happens next for the Company as it recovers from the criminal activity that was cloaked by collusion.

Gary Jordan has served as a Vice President of Internal Audit for the past  5 years for PBS&J Corporation and  has 7 years of additional internal and external audit experience including  serving in Deloitte’s Atlanta practice. He recently completed his term as President of the Florida West Coast Chapter of the Institute of Internal Auditors.

Mr. Jordan’s career also includes 20 years at BellSouth Corporation where he served 12 years in financial leadership positions  for  several key business units including:  CFO for  $3.2 billion BellSouth Business Systems Inc., CFO for BellSouth Telecommunications Strategic Management,  CFO for BellSouth.net, CFO for Dataserv and as the Controller for BellSouth Advertising and Publishing Company while also serving in  a Board capacity for several of those units and others. He holds a Masters of Accountancy Degree from Georgia State University and an undergraduate degree from North Georgia College and State University. He is a Certified Public Accountant, a Certified Internal Auditor, a member of the Georgia Society of CPA’s,  American Institute of CPAs and the Institute of Internal Auditors.

The dinner meeting will be held at the Westshore Hotel, located at 1200 N. Westshore Boulevard. The hotel is just north of I-275 and Cypress Avenue on the east side of Westshore (map). Evenings will begin with a social at 6:00 P.M., followed by a buffet dinner at 6:30 and a presentation at 7:00. The cost is $25.00, payable at the door.

To make your reservation, please use the following link Chapter Meeting Reservation and complete the form at the bottom of the page.  You can also make your reservation by emailing Wayne Boytim by January 9, 2009. Reservations will be accepted after that date and walk-ups are always welcome. Please remember that cancellations are accepted up to the afternoon of the meeting. No shows will be billed after the second missed meeting. Please help us keep our costs down by letting us know if you are unable to attend.

Twenty Danger Signs of Embezzlement

From the Colorado State University System Department of Internal Auditing:

• Borrowing small amounts from fellow employees.

• Placing personal checks in change funds, undated, postdated, or requesting others to “hold” checks.

• Personal checks cashed and returned for irregular reasons.

• Collectors or creditors appearing at the place of business, and excessive use of telephone to “stall off” creditors.

• Placing unauthorized IOUs in change funds, or prevailing on others in authority to accept IOUs for small, short-term loans.

• Inclination toward covering up inefficiencies or “plugging” figures.

• Pronounced criticism of others, endeavoring to divert suspicion.

• Replying to questions with unreasonable explanations.

• Gambling in any form beyond ability to stand the loss.

• Excessive drinking and night clubbing or associating with questionable characters.

• Buying or otherwise acquiring through “business” channels expensive automobiles and extravagant household furnishings.

• Explaining a higher standard of living as money left from an estate.

• Getting annoyed at reasonable questioning.

• Refusing to leave custody of records during day; working overtime regularly.

• Refusing to take vacations and shunning promotions for fear of detection.

• Constant association with, and entertainment by, a member of a supplier’s staff.

• Carrying an unusually large bank balance, or heavy buying of securities.

• Extended illness of self or family, usually without a plan of debt liquidation.

• Bragging about exploits, and/or carrying unusual amounts of money.

• Rewriting records under guise of neatness in presentation.

Financial Integrity Demands Diligence and Discipline

A recent New York Times article cited a report by four professors of nonprofit accounting suggesting that theft in nonprofit organizations could be as high as $40 million for 2006, which would represent a loss of 13% of that year's gross contributions of $300 billion. (Report Sketches Crime Costing Billions: Theft From Charities, New York Times, page A9, March 29, 2008.)  The amount is staggering, and if true would represent a rate of loss to fraud that is double the experience of the for-profit community.

Until now, there was no government agency tracking nonprofit fraud on a national basis, but that is about to change.  The new IRS 990 form will require that nonprofits report any losses due to theft or fraud in their annual tax filings.  Over time, this will give us a more accurate picture of nonprofit experience with theft, fraud or embezzlement.  Given that many of the frauds perpetrated against nonprofits take years to discover, it will take several years of tracking this experience to get a balanced understanding of the scope of the problem.

Nonprofit organizations are dominated by people who are so passionate about the mission that they tend to assume that those around them share the same passion and integrity.  But managers, and board members of nonprofit organizations would do well to borrow a page from the U.S. policy book during the cold war, when the administration practiced "trust and verify" in interactions with the Soviet Union.

Serious students of management know that financial integrity demands diligence and discipline. Nonprofit history is an inspiring tale of service to people in need, but not without the unsavory tales of fraud and embezzlement.  Commitment to mission does not grant immunity from theft.  The New York Times article pointed to male executives with long tenure earning over $100,000 per year as the most common perpetrators of nonprofit fraud.  We need not look far for pertinent examples that seem to prove this observation:

• In 1995, William Aramony, CEO of the United Way of America, was sentenced to seven years in jail for conspiracy, money laundering and embezzlement costing the United Way millions of dollars in legal fees, lost contributions, and theft.
   

• Two years later, John G. Bennett, Jr., CEO of New Era Philanthropy, was sentenced to 12 years in orison for defrauding charities, churches, colleges, and philanthropists of over $135,000,000 in a classic Ponzi scheme.
   

• In 2002, Sherif Abdelhak, CEO of the Allegheny Health, Education and Research Foundation, was convicted for diverting $52,400,000 of donor restricted funds, driving the hospital system into bankruptcy.
   

• Two years later, Oral Suer, CEO of the United Way of the National Capital Area, plead guilty to transporting stolen money across state lines, making false statements and concealing facts relating to an employee pension plan, costing the United Way of millions of dollars.
   

• In 2006, William P. Crotts, CEO of the Baptist Foundation of Arizona,  was sentenced to eight years in prison and ordered to pay restitution of $159,000,000 in a Ponzi scheme that defrauded over 10,000 pensioners from hundreds of millions of dollars of retirement savings.

It is common for nonprofit boards and managers to place tremendous faith in the findings of their auditors.  Interestingly, in the cases above, some of the world's greatest auditing firms gave a clean bill of health to the United Way of America, the Allegheny Health, Education and Research Foundation, and the Baptist Foundation of Arizona shortly before their perspective fiscal crises.  The value of audits should not be minimized, but fiscal prudence demands more than hands off reliance on the auditor's report. 

There are over 1.5 million nonprofit organizations in the United States today, and over 30% of them operate perpetually in financial distress, with some estimates that as many as 7% of all nonprofits are technically insolvent.  Given the minimal average net margins for the nonprofit community, an average loss to theft in the double digits could potentially represent a huge swing from solvency to insolvency.

The analysis that concludes that the rate of theft in nonprofit organizations averages 13% is particularly startling given that many nonprofits never fall victim to fraud, meaning that the actual experience of organizations victimized by fraud is much higher than 13% loss.  If the rate of fraudulent loss in the nonprofit community is double that of the for-profit community as suggested, donors will be more wary than ever, and will demand change that assures financial integrity in regard to the intended use of their charitable contributions.  Either nonprofits will get serious about addressing this rate of loss to theft, or donors will invest elsewhere for a greater return on investment.  Nonprofit board members and managers should treat each other with dignity and respect, mixed with a disciplined skepticism such as "trust and verify." Charitable donors expect nothing less.

Source http://www.articlesbase.com/non-profit-organizations-articles/financial-integrity-demands-diligence-and-discipline-430004.html

President's Message

An anonymous person once said “Many people look forward to the New Year for a new start on old habits.” Well the New Year is here and I for one don’t want to fall back on old habits. One of my resolutions for 2009 is to bring recognition to our Chapter for its repeated accomplishment of providing the most valuable and current techniques used to detect and deter fraudulent acts. I ask each of you to embrace this opportunity with me to earn this recognition. That being said let us not forget that the primary purpose of our Chapter is to serve the community by the promotion of improved fraud detection and deterrence and through expansion of knowledge and the interaction of its members. With the New Year upon us, we have the opportunity to accomplish much. When asked as to what the New Year will bring, famed author and poet Edith Lovejoy Pierce said “We will open the book. Its pages are blank. We are going to put words on them ourselves. The book is called "Opportunity" and its first chapter is New Year's Day.” So I ask you to make this one of your resolutions - to write your own page in the book to help us achieve the Association’s Chapter of the Year award. Your community involvement will pay great dividends to our quest when you share the spirit of the ACFE with the public so they may gain confidence in the value and integrity of our profession.   If you have spoken, or will be speaking, to the community, contact me with the information and I will get it to the subcommittee who is formulating our nomination package.

We still need members to assist in recruiting speakers for our dinner meetings and the upcoming two-day seminar. We will also need help in preparing handout materials as we get closer to the seminar.  In addition, we can always use members to research relevant fraud articles and submit them for publication in this newsletter.   

Our next dinner meeting is scheduled for January 13, 2009. Gary Jordan will be presenting the PBS&J Embezzlement Scheme at 7:00pm. Dinner will be served at 6:30.  Get there early for some additional interaction among your Chapter members. Don’t forget, if you know of someone who is interested in pursuing our profession, you may sponsor them to our dinner meeting and the Chapter will pick up the cost. We limit this to two sponsorships per meeting, so please get approval in advance. Contact Wayne Boytim for the approval.

Let me end this message by giving you another New Year quote by Aisha Elderwyn, an Australian artist, author, musician and composer: “Every new year people make resolutions to change aspects of themselves they believe are negative. A majority of people revert back to how they were before and feel like failures. This year I challenge you to a new resolution. I challenge you to just be yourself.”  On behalf of your Chapter Officers and Directors, welcome to the New Year. We look forward to serving you in 2009.

Steve Hooper, CFE, CIA, CGAP, CCSA