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Summary:
A volunteer in a charity organization
noticed unusual relationships and transactions and decided to
investigate. What he found was fraud - funds diverted by a staff member
to friends.
Background:
A religious, charitable organization
was very active in matching available funds with specific needs of
families. They did not hand out cash. Instead, they paid directly for
groceries, car repairs, home repairs, etc. Detailed files were
maintained for each of the "clients" providing information on
dates of meetings, services needed, services provided, and vendor
payment information. A dedicated volunteer noticed that some of the
files were not being updated. In other cases, the relationship and
payments were not documented at all. The reason given was that everyone
was overworked, and they were more intent on meeting the mission of the
organization than "filling out paperwork." The volunteer,
with the approval of the Board of Directors, began working on
reconstructing data for the client files. It became obvious to the
volunteer that payments were being made to one specific vendor on a
regular basis when no services were being provided. At this point, the
project went from cleaning up paperwork to investigating fraud.
The oversight board ignored warnings
about what was discovered. They eventually ordered the volunteer to
stop all work and to not discuss his "opinions" publicly.
However, with the approval of one board member, the volunteer took the
information he had gathered to local law enforcement. Prosecutors
determined that there was good reason to look further but encouraged
the volunteer to contact Arxis to help put together a well-documented
case that they could prosecute.
Arxis Work:
Thousands of pages of documentation
were provided for review. The records provided were inconsistent and
incomplete. This was due to limited information available to the
volunteer without access to all relevant data. Work was done to
complete an analysis of a single client from commencement of the
relationship through payments of a vendor to establish expectations of
process and documentation. Even this step was impossible. Without the
ability to benchmark, it became nearly impossible to prove unusual or
unauthorized transactions.
Analysis was done to determine the
documents that would be needed to complete the investigation. In
meeting with the volunteer, it became apparent that without the
approval of the oversight board or key members of management the
documents could not be obtained without the weight and reach of law
enforcement. Since law enforcement already referred the matter out for
documenting the case and providing evidence, it was obvious they were
not able or willing to pursue that step.
Result:
In a case where there was significant
evidence of malfeasance, there was the inability to document it
sufficiently to prove the legal elements of the crime to a trier of
fact. This case highlighted two common hurdles to prosecuting fraud.
First, it is not always possible to gather evidence sufficient to meet
the standards required to pursue a conviction. Second, in an
organization where there is a culture that tolerates or encourages
fraud, it is difficult, if not impossible, for one or two people to identify
and eradicate fraud. There is enormous pressure on nonprofit
organizations to never publicly admit financial malfeasance. Therefore,
in these situations, there is little motivation to pursue the matter
when malfeasance is found.
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Unfair business and trade practices
involve a wide range of matters, such as business conspiracy, breach of
fiduciary duty, misappropriation of trade secrets and other proprietary
information, fraud, tortious interference with contracts,
misrepresentation, and other oppressive or unconscionable acts or
practices. Through an examination of financial records, a forensic
accountant plays a vital role in uncovering facts that can support of
repudiate an unfair business practice claim. Forensic accountants are uniquely
qualified for this role because of their knowledge and experience in
financial document analysis, accounting principles and auditing
techniques.
Arxis Financial
offers litigators exceptional forensic accounting support. With
thousands of clients served over the decades, we have developed a depth
of expertise in working with businesses of all sizes from many
industries. This experience carries over significantly to our
"Forensic
Accounting" practice. Our services include
reconstruction of accounting records, analysis of business
transactions, document review and tracing, and expert witness
testimony.
Arxis Financial's professionals
apply detailed investigation and analysis that is necessary to uncover
essential facts and provide meaningful insights. We assist attorneys in
interpreting the data, and help counsel to understand and analyze
events or issues. Expert analysis and conclusions are presented in
depositions and trial at local, state and federal court levels as well
as mediation and arbitration. This level of support can be a key asset
in determining a legal strategy as well as reaching a reasonable and
efficient conclusion.
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