The Fraud Examiner

A Study in Asset Misappropriation: General Manager of Farming Co-op Defrauds Employer Out of More Than $5 Million
 

Julia Johnson, CFE     
Research Specialist, Association of Certified Fraud Examiners                                 


A quiet farming community in Minnesota garnered national attention when it was discovered that the former general manager of a large grain elevator company there had been misappropriating his employer’s assets for nearly 15 years to fund exotic international hunting trips and other personal expenditures.

Jerry Hennessey, an employee of Ashby Farmers Cooperative Elevator Co. for 30 years, funneled $5.3 million through his employer’s bank accounts by misrepresenting business expenses and overstating inventory to serve as collateral for a loan that he then used to cover up his fraud scheme. He also failed to report $3.5 million of the illicitly obtained income on his personal tax returns, which resulted in federal and state tax revenue losses of $1.2 million and $400,000, respectively.

With a mounting level of debt requiring immediate repayment and not enough inventory on hand to back it up, Hennessey skipped town for nearly three months. The longstanding fraud scheme was discovered when the bank, after failing to reach Hennessey, contacted the grain elevator company seeking repayment for the nearly $8 million loan he had taken out on behalf of his employer.

The company’s board of directors began investigating Hennessey with the help of a forensic accounting firm after becoming aware of the loan made on the premise of an extra $5 million in grain that could not be stored in the company’s elevator. The forensic accountants found several checks made to specific individuals and companies unauthorized by the board that falsely represented the purchase of corn, soybeans and operating expenses. Investigators later determined that these checks were used by Hennessey to pay for an addition to his home, cabin renovation, ATVs, credit card debt, domestic and international hunting trips, taxidermy and property taxes on several pieces of land he owned. In total, Hennessey wrote more than 100 checks for personal expenditures worth more than $5 million.


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