Sorry, this fraud has been disconnected, part 2

$1.5 million fraud at a telecommunications company

By Meric Bloch, J.D., CFE, CCEP-F

In part 2, the evidence mounts against Dan Jackson as the author's fraud examination begins. Jackson remains obstinate through his indictment and prosecution.

As we left part 1, Chloe Portela, NyTell's financial controller for the data center consolidation (DCC) project, had calculated that 70 percent of the DCC had been consumed, which was about 30 percent over budget. She pulled copies of invoices for ITC — one of the project's supposed vendors. Chloe had never heard of the company. In a panic, she talked with her boss, CFO Brooke Nokklekort, who called the author, a fraud examiner for NyTell. Management is very concerned.

Experience has taught me that it's important to manage the expectations of executives and keep them from hyperventilating over their own speculation. Corporate life is rarely exciting, and, even when fraud or serious misconduct occurs, it tends to be less serious than originally feared. Well, not always.

By this time, NyTell had paid 64 invoices from ITC and TES. CFO Brooke Nokklekort explained when we met that, although she had signed off on the invoices of more than $25,000, she'd simply relied on the earlier approvals of Chief Information Officer Chet Plumpton and Financial Controller Chloe Portella, as well as seeing Dan Jackson's "OK to pay" on the invoice. Brooke told me that her entire department was at my disposal and that she had already told Chet to shut down the project until this was straightened out. For good measure, she said, "I already called Oslo about this, and I am surprised you didn't hear the big shots screaming from across the Atlantic."

A quick call to Ollie Eckmer in Procurement confirmed that they had no contracts, statements of work or rate cards for either company. There would be no project-related documentation for ITC or TES other than the invoices.

Nancy Lynn in Accounts Payable confirmed that, other than the DCC Project, NyTell hadn't paid either company for any other project. Nancy Lynn accessed BOONIS and got me copies of the ITC and TES invoices. I reviewed the invoices and noticed two things that piqued my curiosity. First, each one of them appeared to have Dan's "OK to pay" and signature on them. The invoices were the PDF images pulled straight from BOONIS. This meant that Dan approved the invoices before they were even sent to NyTell for payment.

The second thing was the time stamps on the invoices. The dates on the invoices varied, but most of the time stamps weren't contemporaneous with the invoice date. Some of the invoices also shared the same time-stamp date. This meant that the invoices were probably submitted in batches rather than individually.

But why? What vendor sits on his invoices and lets them pile up? By sorting the invoices by time stamp, it appeared that many were submitted near the end of a calendar quarter. I asked Chloe if there was any significance to the calendar quarter. "We do a project review at the end of every quarter to see how we are doing," she explained. "If there is any extra money in the budget, Brooke makes us give it back right away."

Because ITC and TES had Pennsylvania addresses, I checked with the Pennsylvania Department of State for corporate filings. It turned out that ITC was a Pennsylvania corporation with offices at 20 Hollow Road, New Park, Pennsylvania. The registered agent for ITC was Jake Marshall. An online White Pages search confirmed the address was Marshall's home address.

A similar search was made for TES. TES was also a Pennsylvania corporation with offices at the same address. TES's president was also Jake Marshall.

NyTell's treasury department retrieved images of the canceled checks mailed to ITC and TES. I compared the checks. The endorsements showed that all the checks had been deposited in the same bank account. The handwriting matched on some of the endorsements for checks sent to both companies indicating, of course, that the same person endorsed checks for both ITC and TES.

I now had objective proof tying ITC and TES to Jake. Jake was implicated directly into the likely fraud scheme. But even if he had some friendship with Dan, could I show that there was collusion?


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