Together, Reducing Fraud Worldwide


Trusted apartment building handyman betrays boss


Maurice’s reckoning

 





peter-parillo-80x80   Case in Point: Case history dissection

The author reports on an expense reimbursement scheme that can occur in most businesses. He’s changed the names of the victim, his family and the fraudster. — ed.

 SeptOct-contractor-money    
  
Robert Liquori was an immigrant who prided himself on working hard, sacrificing “temporary distractions” such as vacations and saving every penny he could to invest in property. After several years, Robert purchased his first apartment building, which consisted of six, two-bedroom units. Though the building’s price was low, it needed extensive repairs. But he fixed everything with the help of his wife, Jessica, and their children, Ronald and Natalie.

Robert and Jessica soon bought a 25-unit apartment building next door. In the next 20 years, they bought 10 additional buildings for a total of more than 300 units.

Robert now couldn’t handle the repairs, so he hired a maintenance man, Maurice.

Maurice received a nominal salary, but he lived in a rent-free unit. He cleaned apartments when tenants moved out and fixed damages. 

Maurice would buy items for repair from the nearby hardware superstore with his own money and give receipts to Robert for reimbursement in cash or by check. Maurice submitted about $2,000 a month on average in reimbursable expenses. The tenants were happy and everything seemed to be operating perfectly.

Ronald and Natalie, now college students, would occasionally come home to visit. Natalie, a marketing major, would talk about her projects and marketing techniques for catching consumers’ attention. Ronald, a more conservative auditing major, reviewed his father’s books and records. “Why are so many repairs being done?” he once asked his dad. “The building is getting old, things break more often these days,” Robert replied. 

During one visit home, Ronald wanted to purchase clothing hooks from the hardware store for his and Natalie’s dorm rooms. He bought two types using his credit card figuring that he’d return the one Natalie didn’t like. The next day, Natalie gave Ronald the hooks she didn’t want. At the store, Ronald realized that he forgot the receipt for the item and thought he wouldn’t be able to return it. 

The cashier asked, “Did you purchase it on a credit card?” 

“Yes, why do you ask?” 

“I can scan your credit card and refund the amount you paid directly to the credit card you used.” 

“What if I didn’t use a credit card?” 

“No problem. We refund you the lowest sale amount within the last three months either in cash if the item is under $25 or in store credit.” 

Ronald returned to his parent’s home, picked up his bags and headed back to school.

PROF’S PROJECT: DEVISE A FRAUD

As the new semester began, Ronald looked forward to taking a particular auditing course because so many of his friends liked the professor, Dr. Thomas, who was an anti-fraud expert.

During the first week of the semester, Dr. Thomas assigned the class a project “What Would a Fraudster Do?” He explained that the students needed to devise a plan that would defraud people for personal gain. As students offered their ideas in the classroom, Ronald thought, “Those schemes sound really complicated; many things could go wrong.” He spent the next few days trying to think of the perfect, simple scheme. 

One day, as he was hanging the hooks he had bought at the hardware store, a fraud came to him: Purchase items, submit the receipt for reimbursement, return the items after you’re reimbursed. Clean, simple and hard to trace. Then he thought, “Wait a second — could that be what Maurice is doing?” 

Ronald knew that he needed evidence to present to his father. “Should I go home to investigate?” he thought. “What if I’m wrong and Maurice gets upset and leaves? Who will do all the maintenance?” Ronald decided to wait until the December holiday break. “If it’s fraud, I will have two more months of evidence. If it isn’t fraud, it will be a good thing I waited and not overreacted.” Ronald called his father and told him that he was working on a class project and asked him to keep all of Maurice’s submitted receipts. 

During Ronald and Natalie’s holiday breaks, she explained the new projects she was working on and how exciting it was to come up with creative ideas. Ronald thought to himself, “You’re coming up with ideas to have people do things, and I’m coming up with plans to stop them from doing things.” 

STRANGE PATTERN

Ronald began analyzing the expense reimbursement trends in his dad’s ledgers. He saw that expenses were averaging $2,000 per month except for May and November, which were approximately $4,500 each. He entered each specific item on each receipt onto a spreadsheet including the details Maurice wrote on each receipt about the purpose of each item. 

Ronald began noticing a strange pattern. During one year, Maurice had painted many apartments multiple times and had replaced a toilet bowl in apartment 3C five times. Ronald went to his father. 

“Dad, who lives in apartment 3C?” 

“It’s one of Maurice’s relatives. Why?” 

“I find it strange that the toilet was replaced five times.” 

“Maurice told me that the toilet was faulty and needed to be replaced. I said call a plumber, but he insisted that it would cost less if he did it. What’s going on?” 

Ronald knew that his father would want to confront Maurice directly, so he quickly said, “I’m reviewing something that seems a little strange with the reimbursed expenses. Why was May more than previous months?” 

“Maurice went on vacation the month of June and wanted to make sure everything was done beforehand.” (Ronald thought, “Great — spending money for vacation.”)

Ronald figured Maurice’s explanations seemed reasonable to his father, so he needed solid evidence to convince him that Maurice had committed a crime. Ronald gathered the receipts and drove to the hardware store. He told Joe, a store manager, who knew his dad, about his suspicions. 

“I think I can assist you to a degree. With the more recent receipts I can determine what was returned from the items purchased. In addition I can tell you if either cash or store credit was issued,” Joe said. 

After a few hours of walking around the store, Ronald heard his name paged. Joe was waiting at the customer service desk with a stack of papers. “Really interesting,” Joe said. “I noticed that the majority of the items on the receipts were returned, some of them within minutes of purchase.” 

Ronald gathered the printouts and headed back to his parents’ home. On the way he thought of ways to explain the fraud to his father. Each scenario ended with his father yelling and screaming at Maurice. 

Ronald reviewed the evidence with his father and was shocked that Robert just sat back and said, “I always felt something wasn’t right but never thought it was this obvious. How could I let this happen? Now what do I do?” 

 


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