Former compliance officer committed $400,000 fraud


Another fraud story serves as a cautionary tale for business and government leaders. In this case, it was a compliance officer at a government agency who pleaded guilty to stealing more than $400,000 while on the job.

According to an article on the FCPA Blog, Hector Martinez of California is accused of committing wire fraud and aggravated identity theft, and faces 33-41 months in prison for the first charge and two years for the second. He allegedly perpetrated his crimes while employed at the National Labor Relations Board (NLRB), an independent federal agency.

According to the article, his responsibilities included disbursing back pay to victims of discrimination in the Los Angeles area. It is alleged that he was stealing from the NLRB from December 2010 through October 2015, when he was placed on leave and later fired. As the article notes:

Martinez created fictitious discriminatees in real cases in which back pay was owed. He invented names for the discriminatees and paired the fabricated names with real Social Security numbers for other people. Then he created fictitious amounts of back pay and diverted this money to his own personal bank accounts.

Martinez stole the money due to legitimate discriminatees, who received nothing, or he skimmed money from legitimate discriminatees, reducing the amount paid to them.

Even that wasn't the end of it. The article goes on to state:

He diverted back pay that nine employers paid to the NLRB and that should have gone to victims.

Having appropriate and effective controls in place is the first line of defense against this type of rogue employees. Government agencies can be particularly vulnerable, especially when they are short on staff and/or have budget restraints that prevent them from implementing, monitoring and maintaining a robust anti-fraud program.

That's why it's important to hire outside experts like CRI Group, who can develop and implement the program for the client. Furthermore, CRI Certification provides the training and tools to put a plan in place for preventing and detecting fraud (learn more about CRI Certification). The critical elements include the following:

Code of conduct
It is not enough to just expect employees to know that fraud won’t be tolerated at any level. An ethical code of conduct should spell out in plain language the company’s expectations and zero-tolerance policy toward unethical behavior.

Background Checks
A robust fraud prevention program should include pre- and post-employment background screening that includes a thorough investigation of employment, credit, licensing and criminal history for all new hires.

Segregation of duties
Roles and responsibilities should be divided so that no single employee has too much control over finances or assets. Accounting functions, in particular, should be separated and owners or managers should review bank statements and payroll checks. Check-signing authority should be reserved for an employee who does not have regular access to checks. Transactions should require proper authorization in all cases.

Audits and other checks
Frequent, surprise audits can help uncover even small problems before they develop into something worse.

Anonymous hotline
Studies show that most frauds are still uncovered by tips. It easy for people to make a report, whether through a hotline, an online reporting system, or both.

Once a fraud prevention program has been implemented, program’s effectiveness should be reviewed over the coming weeks, months, and years. Regular assessment periods should be scheduled to track how much fraud has been uncovered, what systemic weaknesses were found and what actions were taken to follow up on them.

With a robust fraud prevention system in place, business owners and executives can sleep a little easier knowing their organization has reduced risk and increased their ability to prevent and detect fraud. Contact CRI Group today to learn more.