Boards' familiarity of 'bullybezzlers' allowed fraud

Paul Laneuville and Carl Walters are true examples of a phenomenon I call the "bullybezzler." Both were executive directors of non-profit organizations that emphasized their missions more than financial stewardship. Both reported to boards of directors. Both deliberately staffed their offices with marginal employees and bullied them. Both easily raided the victim business accounts via electronic transfers, credit cards and checks under the noses of the boards of directors despite the presence of auditors and outside accountants. Both cost their organizations hundreds of thousands of dollars. And the employees they bullied eventually brought them both down. (I encountered these cases as the senior paralegal at the Hennepin County Attorney's Office in Minneapolis, Minnesota. I've changed the names of the fraudsters and organizations.)

Paul Laneuville and the Dawning Day Academy

The Dawning Day Academy hired Paul Laneuville as its financial director and promoted him shortly afterward to executive director based on his claims of earning an MBA and other qualifications (which it later discovered to be false).

The academy was a charter school dedicated to providing culturally specific K-12 education for an embattled, impoverished ethnic community. It received significant federal and state funding. Immediately after Laneuville gained control of the school's finances, he began to electronically transfer academy funds and write checks to his own personal and shell-company business accounts. He'd forge any necessary additional signatures. Laneuville concealed his thefts by making several ACH transfers to which he appended a memo line with false payee names so they appeared to be related to legitimate academy expenses.

Laneuville assiduously courted the academy's board of directors. He and the board's members were all from the same ethnic community as the academy's students; he shamelessly exploited this connection and implied an altruism toward his community that he didn't have.

The board members — none of whom had a background in school administration or financial management — trusted him and gave him financial director authority despite the academy's founder's warning that this was illegal. They swallowed his financial reports, assertions and recommendations wholesale, including his firing of the academy's outside auditors when they challenged the lack of documentation for the academy's expenditures. (He fired two separate auditing firms late in his scheme.) The board members approved the changes of these auditors when the auditors challenged the lack of documentation for the academy's expenditures.

Laneuville also manhandled the academy's administrative offices. He hired staff employees from the same embattled community who had pockmarked professional histories. Laneuville ignored, berated or fired any who questioned him. Turnover was high. Toward the end of Laneuville's reign he hired a plain, middle-aged woman from a temp agency to be the bookkeeper. He systematically reduced her responsibilities until her only duty was to cut checks at Laneuville's direction for him to sign.

The grand total that Laneuville stole from the Dawning Day Academy was $1,038,000."

In a truly lyrical turn of events, the very plain, middle-aged temp bookkeeper he hired late in the game finally detected and reported Laneuville's thefts. Laneuville mistakenly believed that all women were stupid, and all plain, middle-aged women were stupid and ripe for bullying.

This temp turned out to be a very skilled bookkeeper and a very capable fighter. She reported and documented her suspicions to local law enforcement, whose investigation led to Laneuville's prosecution on eight counts of felony theft.

After trying and failing to get some traction with a weird alcoholism defense, Laneuville pleaded guilty to all eight counts and was sentenced to 120 months in prison — long after the Dawning Day Academy shut its doors forever because of the financial ruin he caused.

Carl Walters and WHIP

In the early 1990's, Carl Walters, a Vietnam combat veteran with a general business degree, applied for and got a job as executive director for the Waste Hauling International Professionals (WHIP), a non-profit trade organization of waste-hauling companies. Members' dues entirely funded WHIP.

Shortly after Walters began at WHIP, he hired his wife as an independent contractor-administrative assistant for the organization. In 2001, Walters hired a bookkeeper for WHIP who, by now in her middle years, had had more than a dozen jobs of limited duration in a neighboring state.

Walters cultivated the members of WHIP's board of directors, so they grew to like him and entrusted him with all the organization's financial affairs, including directing the bookkeeper's preparation of financial records and payroll. Walters, his wife and the bookkeeper formed the core of the satellite office staff, with a number of ancillary low-level employees cycling in and out.

Walters routinely, systematically and prolifically withdrew cash from WHIP's bank accounts through ATM and bank visits, charged personal expenses to a WHIP credit card and issued checks to himself from the WHIP main checking account — all in addition to his regular salary and annual bonus that usually totaled $100,000 plus each year. The bookkeeper, at Carl's direction, recorded those transactions with false expense codes in the office's bookkeeping system so they appeared to be business-related expenses or transactions on behalf of WHIP.

The bookkeeper routinely gave its accounting firm, located down the hall from WHIP's satellite office, falsified records with no supporting documentation. The accounting firm then prepared a monthly "compilation report" that essentially regurgitated the bookkeeper's bare-bones submissions, and the WHIP satellite office incorporated these reports as its accounting analysis of the organization's financial condition. Notably, this accounting firm issued a warning letter in 1995 to WHIP that its financial stewardship was not within generally accepted accounting principles. It's unclear if the WHIP's board of directors ever saw this letter.

This accounting firm, under Walters' authority, was in a contract to WHIP through late 2011. Walters submitted letters (signed by the pliant bookkeeper) to the treasurer of the board of directors at its quarterly meeting, which stated the WHIP's financial condition. The board, comprised of volunteers culled from business-owner members of the trade organization, routinely accepted these letters, even though they lacked documentation and details.

Between 2009 and the end of 2011, Carl stole more than $440,000 from WHIP via fraudulent cash withdrawals, a credit card he took out in the name of WHIP that used his home address for the monthly statements and fraudulent checks to himself. He made most of the ATM withdrawals at casinos. The bookkeeper — at Walter's direction — intentionally falsely coded all the cash withdrawals and fraudulent checks as expenses that typically didn't require board review or approval.

Walters also plundered other, smaller WHIP accounts and CDs and opened up a $20,000 line of credit in WHIP's name to replenish the main checking account. He was happy to have a second-stringer as a bookkeeper whom he could order around and keep nervous with scathing performance reviews. Walters was also generous — or canny — enough to throw her a few checks totaling $18,000, which she also falsely coded as legitimate business expenses. Therefore, when the scheme finally came crashing down, the bookkeeper was also culpable.

In the fall of 2011, a short-term female employee whom Walters had browbeat and abruptly fired notified the WHIP board of directors of the corruption. The board initiated an independent audit of WHIP's finances, which revealed Walters' thefts. WHIP representatives then made a report to law enforcement, a criminal investigation ensued, Walters resigned and the board fired his wife and bookkeeper.

Walters was charged with six counts of felony theft by fraud over $35,000. He tried mightily to use his status as a Vietnam combat veteran with an alleged case of PTSD as a defense. His effort failed, and he eventually pleaded guilty to all six counts. Walters was sentenced to 68 months in prison, but the sentence was stayed for 10 years. His entire incarceration was 60 days in the local workhouse. Walters continues to fight a restitution order.

Sermonette

One thing a predator bullybezzler needs: control over the business environment. Laneuville and Walters systematically exploited and protected the isolation and insularity of their offices. They maintained strict control over management of the accounts. They protected their hiring and firing authority; they deliberately hired people who had difficulty finding other work and paid them poorly, which made them vulnerable to job loss and afraid to speak up. Laneuville and Walters controlled the selection and termination of outside auditors and accountants and protected their positions as the only points of contact with their boards of directors.

Laneuville and Walters carefully groomed their relationships with their boards by exploiting their similarities with their boards' members. They also tried to mirror their employers. Familiarity in the business world breeds contentment, and we tend to trust those similar to us more quickly and readily than those who are different. And those whom we trust become invisible after a while.

It's all about the perception of detection. There's no limit to what you can accomplish — and steal — when nobody's looking.

Annette Simmons-Brown, CFE, is a senior paralegal at the Hennepin County Attorney's Office in Minneapolis, Minnesota. Her email address is: Annette.Simmons-Brown@hennepin.us.