Hello. I'm Grant Walstrom, contributing editor to Internal Auditor magazine's fraud department and Senior Manager of Fraud Forensics and Investigations at a ADT in Boca Raton, Florida. I'm pleased to introduce this episode of Fraud on the All Things Internal Audit podcast, which provides fictionalized accounts of fraud based on actual events. Part One Orange is the New Office Attire.
In August, 2023, Jonathan Eric, a former employee of the City of Somerville, traded his office attire for the infamous orange jumpsuit courtesy of the Stone County Sheriff's deputies, his new accessory charges of felony theft and fraud. Close to the county jail City auditor, Michelle Martinez sat in her office reading the news of Eric's arrest. His mugshot practically screamed caught in the act.
Part two gift cards gone Rogue. Martinez, the sharp-eye internal auditor first sent something fishy with Eric's use of the city's credit cards. She and her team had one mission. Make sure employees with purchase card privileges didn't treat them like their personal piggy banks. The city purchasing department had laid out clear rules. Some things were a big no-no like gift cards. They were considered high risk and were prohibited because they were too easy to steal and turn around to sell.
Someone could easily profit at the city's expense. Martinez had a knack for using the department's various tests to sniff out any funny business in her audits. During one of her routine checks, some small purchases, 100 to $200 from several stores stuck out like a sore thumb Among the usual expenses like fuel and office supplies, something seemed off. She decided to dig deeper. First stop the expense report for these odd transactions. They all had one thing in common.
Jonathan, Eric, as she peeled back the layers, she found receipts that did not match the descriptions on his expense reports. A $200 Visa gift card masquerading as an electronic hearing protector. Nice try Eric. But the mismatched fonts and inconsistent details were a dead giveaway. Martinez suspected a shallow fake, a low tech trick to manipulate receipts and called in her office's fraud investigators. A few weeks later, investigators had good news thanks to Martinez's Sharp Eye.
They uncovered Eric's gift card scam after just a few months and about $1,500 in unauthorized expenses, knowing that fraudsters tend to get greedy. Over time, the office of the city auditor decided to dig into Eric's purchasing history for more red flags Per three fiscal FOLs on unmasked. Their hunch paid off. A thorough review revealed another $1,500 in personal purchases, mainly firearm accessories. Eric had a knack for disguising these as tools like a punch and die tool set.
Open source intelligence confirmed Eric's enthusiasm for firearms, making his alterations even more suspicious. Martinez's boss also said that Eric used his purchase card to buy gift cards worth 50 to $200 in November and December of last year. They laughed and said, looks like someone did some holiday shopping on the city's dime. Eric knew his supervisor was the first line of defense against his expense fraud.
Since she reviewed and approved his monthly purchases to bypass her oversight and hide his fraudulent gift card purchases, he doctored the receipts before submitting them. In some cases, Eric changed the shipping address on these documents from his home to his Somerville office with these falsified receipts and altered purchasing records. His supervisor believed his purchases were legitimate city expenses and approved them without suspicion.
Eric managed to steal nearly $3,000 before his game was up. Though a modest sum, it proved the city's purchase controls were effective. Without these measures in Martinez's due diligence, Eric could have caused far more financial damage for the city. This has been the All Things internal Audit fraud podcast, fictionalized accounts.
Based on actual events brought to you by the Institute of Internal Auditors, I I A members can access the full story in this month's issue of Internal Auditor Magazine, including bonus materials on lessons learned. To read more, visit internal auditor dot the iia.org for more fraud related resources, including guidance and thought leadership from the I I A and the afe. Visit the iia.org/acfe fraud.