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This article is excerpted from the "Bribery and Corruption Casebook: The View from Under the Table," edited by Laura Hymes, CFE, and Dr. Joseph T. Wells, CFE, CPA, published by John Wiley & Sons Inc. © 2012 Used with permission. Names of persons and organizations in this case have been changed.

Dan Jackson was living the good life: a well-paying job, beautiful wife, kids in private school, expensive clothes, Rolex watches. However, the façade hid a man who defrauded his company of $1.5 million. In part 1 of this two-parter, we learn Dan's background and his collusion with Jake, a sleazy external consultant.

There seemed to be no limit to where he would go in the company. He had recently been promoted to corporate vice president in the IT department at NyTell USA. NyTell paid him a good salary with an annual bonus. Dan just completed the company's Senior Leadership Training course, a two-week seminar in Lillehammer, Norway — where NyTell executives are groomed for advancement. The walls of Dan's offices were covered with photos of him with NyTell big shots. The credenza behind his desk was littered with knickknacks from his world travels and Lucite paperweights commemorating his big IT projects.

Dan had come a long way from Beaufort, South Carolina. The son of a career Marine officer, Dan spent his childhood moving from one military base to another. After his father retired from the Marines, the family settled in Beaufort when his father accepted a job teaching military history at a nearby college.

Major Jackson ran his family like a military commander. The kids were expected to obey orders without question. Resistance was futile. "When my father told us to do something, the only option was to salute and carry on," Dan was heard to say more than once. Although Major Jackson thought the application of military discipline built character in his children, it left Dan with a constant insecurity that he would never meet his father's standards.

Dan sought the major's approval, confident that someday he would earn it. But he never got the chance. During Dan's senior year at the University of Maryland, his father was killed in a car accident on a rain-slicked road. Dan would never make peace with his father.

That was 20 long years ago. Now Dan seemed to have it all. Besides the job at NyTell, Dan and his beautiful wife, Sue, were renovating a 1750s farmhouse they bought near Towson, Maryland. Sue thought it would be their dream house. Their children attended private school nearby. Sue enjoyed being a stay-at-home mom, and she felt lucky that her husband's success at NyTell meant she didn't have to work.

Dan had been at NyTell for six years. Believing that being an executive meant looking like one, Dan always wore Brioni suits — at $2,000 each — and a gold Rolex President watch. The company's travel policy required renting only mid-size cars, but Dan personally paid the extra charges and always upgraded to a Cadillac. When people questioned how a VP could afford those things, Dan explained that he shrewdly cashed-out his investments before the dot-com bubble burst in the late 1990s.

Dan took frequent vacations despite all the expenses in his life. Sometimes he took the family to Disney World or the Bahamas. Other times he went for a "boy's weekend" with some of his coworkers. Sue thought it was harmless fun and a way for Dan to decompress. She never knew that "one of the boys" on those trips was actually Melanie, NyTell's head of human resources. Dan had so far managed to keep his affair secret from Sue for the past 18 months.

On the outside, Dan looked like the ideal NyTell employee. But was he? Behind the carefully crafted image lay a troubled person. "How long can I keep this up?" he constantly asked himself. With the promotions came increased responsibilities for the company's IT networks, infrastructure and computer applications. The technology was getting more complicated, and Dan was not sure he could keep up with it. With his natural good looks and charm — he had enjoyed a college social life most men would envy — he was more talented in sales than as a computer geek. If he wasn't leading the IT department, no doubt he could have been a top NyTell salesman.

Enter Jake Marshall. Jake was also a military brat. After high school, Jake joined the Army, where he served for five years as a telecommunications field engineer. Once discharged, Jake used his telecom skills as an entrepreneur. During the next 12 years, Jake ran through a string of companies. All had big-sounding corporate names and used the right marketing buzzwords. But each company had only one employee — Jake. None was particularly successful, and Jake was coming to realize that he would never be a successful entrepreneur. Why not try his hand at consulting?

Dan and Jake met each other at a telecom convention in San Diego, one of those generic industry conferences where the promoters promise "networking" and guidance on "emerging issues." Over drinks at a reception, Dan explained how NyTell was about to begin the largest telecom project in its history. After touting his expertise in network design, Jake offered to help Dan as a project consultant. "Just let me stay in the shadows behind you. I can keep the other vendors honest," Jake promised. "There's no telling where we can go together. The sky is the limit."

The collaboration would have long-term implications for them, their families and NyTell.

NyTell USA

NyTell USA is one of the newer telecommunications companies. NyTell is a division of Nyheter Telekommunikasjons AS, a Norwegian company. Anders Nyheter started Nyheter after World War II, and it has since expanded to 50 countries with annual revenues of €70 billion. Nyheter is headquartered in Oslo, and its stock is traded on the major European markets.

Nyheter established a compliance department after its auditors found discrepancies in the way NyTell had been recognizing customer revenue. The announcement that the auditors wouldn't verify the financial results tanked Nyheter's stock and led to an ouster of top management. The resulting investigation, however, showed only weak internal controls and not fraud. Nyheter's board of directors ordered the creation of the compliance department as well as the implementation of a whistleblower hotline, ethics training and mandatory reporting of fraud concerns.

Since then, the current management of NyTell has been stable. Amundsen Bryggeri, sent over from the Oslo headquarters, is the current U.S. CEO. Brooke Nokklekort is the CFO. Chester Plumpton is the chief information officer and Dan's boss. Chet is responsible for all of NyTell's IT needs. Bryggeri is holding Chet responsible for the successful consolidation of the company's computer systems.

The DCC project

Like most big companies, NyTell looks more like a collection of smaller ones knitted together. NyTell has four business divisions: NyMobile (wireless services), NyHome (fixed-wire or landline services), NyComputer (Internet services) and NySatellite (television services). Each division was the result of a corporate acquisition, so each has its own legacy data system. Some of these data systems are old, and none is sufficiently integrated with the other systems.

Nyheter's board of directors recently approved the data center consolidation project to co-locate the systems and redesign the network in the U.S. Because Dan designed the project timeline — with more than a little help from HAL, Inc., the lead vendor on the project — the leaders in Oslo appointed him as the project executive.

Dan's first task was to calculate the project budget. He did this in a few hours without a lot of effort. Curiously, the budget had a chunk of money set aside for consultants, although HAL would be doing 99 percent of the project work. No one questioned Dan's assumptions or calculations, however, and the budget was quickly approved.

Although Dan valued the chance to raise his profile in Oslo, he was worried. "Great. Now I have to pull this off, on budget and on time, and I also have to keep Chet from grabbing all the credit." Dan was still fuming from the fact that, three months earlier, Chet had refused to push for Dan to get a promotion and a raise. "Once again, I am doing senior VP work at a junior VP salary."

True to form, once Chet appointed Dan, Chet turned his back on the project. He rarely asked Dan for information, and he never spoke to anyone else on the project. Even when Bryggeri and Nokklekort asked to be updated, Chet had Dan make the presentation, only to sit and fiddle with his BlackBerry while Dan plowed through the PowerPoint slides.

NyTell had engaged HAL to provide a turnkey solution. This meant that HAL would provide almost all of the project professional services. A few additional vendors would provide the specialized services HAL didn't, usually because some piece of equipment or application had proprietary software that HAL's engineers didn't understand.

Dan needed to get Jake on to the project. After an argument with HAL's enterprise architect, the lead designer of the new network, Dan found his opportunity. Blowing the disagreement way out of proportion, Dan convinced Chet that the architect had to go or the project would fail. Because HAL would likely replace the architect with "another flunky off their bench," as Dan explained, NyTell needed someone from the outside. With some more of Dan's famous salesmanship, Chet — who once again didn't ask too many questions — approved the engagement of Jake Marshall. Jake would be a project consultant, and Dan would supervise him. HAL would just have to deal with Jake as the new enterprise architect.

How it's supposed to work

As a NyTell vendor, Jake would submit an invoice for his services to get paid. NyTell used a centrally managed system for processing invoices for its four business divisions. Each vendor would send the invoice to a mail drop box, where it was opened and the invoice was time-stamped to show the date it was received. The invoice would then be digitally scanned and uploaded into BOONIS, the automated accounts-payable system.

BOONIS assigned the invoice to the internal cost center — the ledger account number assigned for a project or department — and the expense was charged against the appropriate account. The invoice then traveled electronically to the cost-center owner for review. Chloe Portela was the financial controller for the DCC project, so BOONIS listed her as the project's cost-center owner.

NyTell had a schedule of authorizations that allowed Chloe, because of her management authority, to approve expenditures up to $5,000. Expenditures above that amount but below $25,000 also had to be approved by Chet. Expenditures worth more than $25,000 also had to be approved by Nokklekort, the CFO.

Once approved in BOONIS, the cost center was charged for the expense and its budget was reduced accordingly. NyTell's accounts payable department then mailed a check directly from the headquarters in Livingston, New Jersey.

The DCC project, however, put a slight wrinkle in this standard company process. Chloe was a financial whiz, but she knew nothing about IT projects. Consequently, she couldn't confirm that an invoice's goods or services were actually provided. To accommodate her lack of knowledge, once BOONIS sent her an invoice, she would email it to Dan for his review. Dan would, or so he told her, validate the invoice and confirm this in a reply email. If the invoice was instead presented to him in hard copy, Dan would scribble "OK to pay" on it and sign his name. Either one was Chloe's assurance from Dan that she could safely approve the invoice.

If Chet or Nokklekort also had to approve an invoice, each first looked for some indication that Dan had validated the invoice. If they saw it, they'd approve the invoice immediately. Their invoice-review process, consequently, became little more than a search for Dan's signature.

Dan's way

About six months into the DCC project, Chloe was concerned. Her job was to make sure that the project stayed within the budget. Based on the project timeline, only 40 percent of the budget should have been consumed by now. But Chloe calculated that approximately 70 percent had been used, and costs were rising.

Chloe knew that HAL provided virtually all of the vendor services for the project. She saw invoices for other vendors, but Dan always assured her that these vendors were needed for small, specialized tasks. But she noticed that two of the vendors were sending frequent invoices for successively larger dollar amounts. One of the companies was called Information Technology Company, and the other was called Technology Equipment Services.

Chloe picked one of the ITC invoices and sent it to Dan for an explanation. "Who were the consultants who did the work here?" she wrote in the cover note. Dan emailed back the same day:

I just spoke with Kim at ITC. She is responsible for AP and will send me the time sheet associated with the onsite resources that were dispatched to rack, power up, test network equipment / connectivity for the project. I will just re-class Bob and Mike's time once processed. They were unable to finish-out the work performed by them.

That was a lot more information than she had asked for, and Chloe could not understand a word of it. When Chloe got stumped on IT matters, she always turned to Willie Ming. Willie was an old hand in the IT department, and he had been working on the DCC project since the beginning. If anyone could translate Dan's email into plain English, Willie could do it.

"Who the hell is ITC?" were words Chloe would long remember. "I've never heard of the company, and they sure didn't do any work on the DCC." Chloe quickly pulled copies of all the ITC invoices from her files to show to Willie. "But isn't that Dan's signature on each of them?" she pleaded. "Sure looks like it," Willie replied.

Trying to conceal her growing panic, Chloe printed off from BOONIS a list of all the project vendors and showed it to Willie. She also showed him one of the TES invoices. Willie knew each of the vendors on the list other than ITC and TES. "I have no idea who TES is," Willie said while perusing the invoices, "but I gotta tell you, the description of provided services is gibberish. Sounds like something you could pull off the Internet in five seconds."

Brooke Nokklekort, the CFO, called me at about 3 p.m. that day. I was at the airport flying home from wrapping up another case. "I need to talk to you about something important. How soon can you be here?" she asked. I told her I could be in the corporate office first thing the next morning. "Good," she said, and hung up. For the next 15 hours, I did not know whether I had landed a big case or was about to lose my job.

To be continued...

In part 2, in the March/April issue, the evidence mounts against Dan Jackson as Bloch's fraud examination begins. Jackson remains obstinate through his indictment and prosecution.

Meric Bloch, J.D., CFE, CCEP-F, is the senior director, global compliance, for Jabil Circuit Inc. He has conducted more than 300 fraud and serious misconduct investigations. He's an author and frequent speaker on investigation topics.

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