Case #10: Half-Million Dollar School Scam
The former facilities director of a prestigious private high school was sentenced to two years and nine months in federal prison in March 2010 for stealing more than a half-million dollars from the school. The defendant, a person we shall refer to as “David”, after pleading guilty to felony crimes of mail fraud and tax evasion was also ordered to repay $562,000 to the high school and $150,590 to the Internal Revenue Service. “David” admitted that, from 1997 until 2009, he submitted phony invoices to the school that were sent out by a company he owned, and he also personally approved those same phony invoices as part of a scheme to fraudulently divert school funds to his accounts.
The Alleged Scheme:
It was alleged that, “For 19 years, “David” was a tireless employee for the school, working day and night, often on weekdays and holidays,” However, according to court documents, “David” on more than 100 occasions used invoices to have payments sent from the high school to a company he had set up. Investigators findings alleged the following:
- Portions of the repair work invoiced never took place, and some performed in-house.
- The company was owned by “David”, and its address was a rented post office box.
- Monies obtained from the school were used for a wide-range of personal expenses.
It appears that “David” had the authority to approve repair invoices of up to $1,000 without approval of other school officials. Anything above $1,000 had to be approved by the school’s president, who told agents that he—trusted completely—“David’s” representations about the invoices.
The Scheme’s Downfall:
It was reported that the defendant was fired from his job in April 2009 for reasons unrelated to the investigation, and the embezzlement came to light after that. The criminal probe began after a school official’s suspicions about “David” were brought to the attention of federal agents, sources close to the case said.
- “David” had the authority to both order and approve repair invoices up to $1,000 without second-person confirmation that such work was performed. No individual should have the authority to place an order with any vendor, acknowledge receipt of that service/product and then approve payment for those services or product.
- “David” also had the authority to approve vendors without impartial verification that those vendors are legitimate businesses. The legitimacy of all new vendors should always be investigated and confirmed by an unbiased authority.
- For 19 years, “David” was thought of as a tireless employee for the school, working day and night, often on weekdays and holidays. While no mention was made of “David” taking vacations, experiences teach that any employee who has constant access to funds or authority to allocate funds should be required to take an annual vacation so that his/her financial records can be examined.
Business fraud and embezzlement are realities that all organizations must confront—No operation is immune to these crimes.
An investment in knowledge always pays the best interest.
– Benjamin Franklin
Be informed – learn from the experiences of others. Get involved – and YOU will be prepared.
Read more in Business Fraud: From Trust To Betrayal