Fraud in Today's Society

Fraud seems to be nearly everywhere in today’s society.  As scary as it may be, it is becoming easier and easier for fraudsters to develop schemes due to today’s technology.  According to Teal, Becker & Chiaramonte, the average business loses about 5% of its annual revenues to occupational fraud.  The 2002 Report to the Nation on Occupational Fraud and Abuse defines occupational fraud as “the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets” (Journal of Accountancy).  In an effort to catch fraudsters, the investigators (whether they are the company or an outside auditor) need to use technology to find the fraud taking place. 

There are many websites available for fraudsters to scheme a fraud.  There are websites that offer:

• Resumes
• IDs
• Alibis
• Doctors Slips
• Receipts
• Fake Websites

These websites, and their related services, can help people in claiming illegitimate expenses, charitable donations to be used as tax write-offs, insurance claims, hide unflattering employment history, hide personal records, etc.  The services out there are astonishing and somehow are legal! 

Some of these fraudster websites are:

• www.careerexcuse.com
• www.alibinetwork.com
• www.fakeiduk.com
• www.fakepaystubonline.com  
• www.paladindeception.com
• www.tradeshift.com
• www.mashable.com
• www.namorofakecanada.com

These websites range from fake resumes, fakes IDs, fake significant others, fake invoices, fake phone numbers, fake emails, fake prior employers, fake paychecks, fake receipts, and more.  This is crazy!  There are websites all over the internet offering these services for fake documents and references.  With all of these ways to create false information, auditors have to pay attention to all of the details of the invoices and expenses that they see. 

With today’s technology, there are even online pages which teach you how to hack into other websites.  There are also pages that will also teach people how to create fake web pages.  This could severely hurt companies if fraudsters are creating fake web pages using their name.  The website www.archive.org allows investigators to see the website history and how far back the website goes. 

There are many ways in which technology can help fraud investigators catch fraudsters:  data analytics, audit trails, and metadata.  Data analytics include inspecting, cleaning, transforming, and modeling data with the goal of discovering useful information (Wikipedia).  Audit trails can be uncovered using today’s advanced accounting programs.  Metadata is hidden information in electronic files.

$15.9M Recouped from Tax Bill Error Findings

Baltimore, Maryland

$15.9M was paid back to the City of Baltimore after millions of dollars in errors were found by investigations through the Baltimore Sun.  Several of the largest commercial properties in Baltimore were undercharged over $700,000 in taxes.  These huge tax errors are coming from city and state officials and agencies in miscalculating tax breaks.

The $15.9M was collected by the city’s Billing Integrity Unit, a team the mayor created in 2011.  The money recouped is from errors in four different tax breaks; meaning the government agencies were either giving too much of a break or giving unqualified properties the breaks. 

Mayor Stephanie Rawlings-Blake is trying to push off an audit of the tax bills in an effort to fix the system first.  In a recent conference, Rawlings-Blake said, “We’re not against audits.  We just want to make sure they’re done in a timely way and are not wasteful of the taxpayer’s money.”  In an effort to fix the system and collect on the undercharged taxes, the Billing Integrity Unit is going through the various tax credits and revamping the tax programs.  Joan Pratt, comptroller, said, "you can't self-audit yourself."  She is insisting that the tax program goes through an unrelated audit, an independent audit.

Independence, a New York State auditing standard, is a huge factor in all audits, including government audits.  Independence is comprised of independence of mind and independence of appearance. 

Independence of mind states that auditors should not be affected by any influences that may cloud his/her professional judgment.  Also, auditors should always act with integrity and make decisions based on objectivity and professional skepticism. 

Independence in  appearance states that the audit report should not cause any third/unrelated parties to believe that the auditor(s) did not reasonably act with integrity, objectivity, or professional skepticism.

In Baltimore, Maryland, Rawlings-Blake allowing her team to go through the mistakes without consulting an outside auditing group is a big mistake.  One of the categories of independence threat is the self-review threat.  This 100% applies here, even if the Billing Integrity Unit is not an auditing team, they are going through their own system and their own programs, things they most likely created.  How many errors you found in a program you created would you publicly discuss?  ...probably not many!  

I think that the comptroller should require that the city's tax credits and programs go through an independent, outside audit.  The auditor will come in with an open mind and will review the different processes.  The auditors can then find where the errors are coming from, how to fix them, and give some recommendations on how to avoid these huge losses in the future.  Within the past decade, the City of Baltimore has endured an $11 million loss in tax revenue because of the flawed tax program.

If there is ever a threat against an auditor or auditing team's independence, they can always consult an independent third party.

http://articles.baltimoresun.com/2013-11-05/news/bs-md-tax-errors-mayor-20131105_1_tax-bills-enterprise-zone-tax-credits-audit

http://articles.baltimoresun.com/2013-10-08/news/bs-md-ci-tax-errors-mayor-20131007_1_finance-director-harry-e-comptroller-joan-m-city-tax-collections

http://articles.baltimoresun.com/2013-10-08/news/bs-ed-audit-20131008_1_property-tax-harbor-point-development-comptroller-joan-m

http://articles.baltimoresun.com/2013-10-17/news/bs-md-billing-integrity-unit-20131017_1_city-property-tax-bills-erroneous-tax-breaks-billing-integrity-unit

Stephanie Pater Charged with Defrauding, Sentenced Two Years

Stephanie Pater, 39, was sentenced to two years in prison on Tuesday, September 24.  Pater admitted to stealing $264,000 from a prior employer and current business partner, Tribune Co., owner of the Chicago Tribune.

Stephanie Pater had over a two-decade career in commercial real estate.  Pater began her career in the industry as an intern during her senior year of college at Emory University in Atlanta, Georgia.  Following graduation, she worked at Trammell Crow Company, Kaplan Inc. and then she moved to Kirkland & Ellis as the Director of Real Estate.  She stayed there for about one year and then moved to Tribune Co. in January of 2008, as the Director of Real Estate.  Pater left Tribune Co. in 2010 to form Catalyst Group, LLC, a provider of real estate consulting for various corporate clients, including Tribune Co.  During the bad times of the economy, Catalyst Group closed and Pater was contacted by American Express.

Stephanie Pater created fraudulent contracts between Tribune Co. and Catalyst Group, LLC which sent commissions from a real estate brokerage company to Catalyst.  This act took place over a six month period.  Pater was asked for a copy of the contract between Tribune Co. and Catalyst Group and she gave them the actual contract to try to cover up that there was any fraud going on. 

The type of fraud that Stephanie Pater delved in was mail fraud.  According to the Cornell University Law School’s Legal Information Institute, mail fraud is having devised or intending to devise a scheme to defraud or obtain money by fraudulent pretenses by means of false representations and having that fraudulent document delivered by mail or other carrier to the appropriate recipient. 

Pater was charged with defrauding Tribune Co. in December 2012.  In addition to horrible, fraudulent acts committed by Stephanie, she missed her arraignment three different times which only angered the judge even more!  Pater’s first arraignment was scheduled for January 3, 2013 and she was a “no-show.” At Pater’s second arraignment, scheduled January 10, she again did not show and the judge, U.S. District Judge Samuel Der-Yeghiayan, issued an arrest warrant.  On January 15, Der-Yeghiayan withdrew the previous arrest warrant after hearing from Pater that she would be in court for her next scheduled arraignment.  Just 30 minutes before the start of Pater’s prosecution, she sent out an email to several people claiming she would be late due to the late arrival of her flight but that she would come straight to the courtroom.  The judge, infuriated, issued a second arrest warrant for Pater.  It was later uncovered that Pater chose not to fly out the night prior in order to make her scheduled time. 

Finally, Pater surrendered and was held in custody, though only for six days.  On September 24, 2013, Stephanie was sentenced two years in prison for her fraudulent activity.  Assistant U.S. Attorney, Rick Young, had asked for a 3½ year sentence because her scheme took place over many months.  Young said, “The lack of any apparent reason leads to one conclusion—greed.  To have a lifestyle she couldn’t have.” 

Pater’s father described her as “fully committed to her work in commercial real estate.”  She said that the charges against her do not seem fit for her character; she is the divorced mother of a teenager. 

I believe that Pater deserved the sentence that she got and possibly even more.  Mail fraud allows for imprisonment for not more than 20 years and a fine.  Pater should have to pay back everything that she stole.  The cause for this fraud was most likely greed.  Stephanie had her own company and she had multiple clients that are large corporate companies, in particular Tribune Co.  She may have been doing this just because she could without getting caught.  Another reason Pater may have done this is to continue to live the lifestyle she lived prior to her husband leaving her.  I do not know where he worked or what type of work he was into but she may have had to downgrade her housing and put a decline on the spending that she may have been used to previously.  Pater was very wrong in doing this to a company, especially a company that was filing for Chapter 11 bankruptcy, which she managed the consolidation for.  

Sources:

http://articles.chicagotribune.com/2013-09-25/news/ct-met-tribune-executive-sentence-20130925_1_former-tribune-co-stephanie-pater-real-estate-brokerage-business

http://articles.chicagotribune.com/2013-01-17/news/ct-met-tribune-executive-warrant-0117-20130117_1_real-estate-stephanie-pater-tribune-tower

http://www.chicagorealestatedaily.com/article/20101213/CRED03/101219969/in-brief-aurora-sale-ex-tribune-exec-west-loop-renewal

http://www.zoominfo.com/p/Stephanie-Pater/1255841305

http://articles.chicagotribune.com/2012-12-28/news/ct-met-former-tribune-executive-indicted-1228-20121228_1_real-estate-stephanie-pater-indictment

http://www.law.cornell.edu/uscode/text/18/1341

http://articles.chicagotribune.com/2013-01-10/news/chi-warrant-issued-after-former-trib-co-executive-misses-court-20130110_1_arrest-warrant-stephanie-pater-real-estate

http://articles.chicagotribune.com/2013-01-16/news/ct-met-tribune-arrest-warrant-20130116_1_arrest-warrant-der-yeghiayan-fraud-case