The indictment of Washington state auditor Troy X. Kelley is a case study in the inter-connected activities of an alleged fraudster. As we have discussed before, the Association of Certified Fraud Examiners (ACFE) has reported in its Report to the Nations on Occupational Fraud and Abuse 2014 Global Fraud Study that there is a high correlation between one type of occupational fraud and the likelihood of the same person committing another type of occupational fraud.
Travel is an expense type that is difficult to control, and as such can be a breeding ground for fraudsters looking to take advantage. In our own Spend Analysis Report for T&E we found that 85% of fraudulent acts are committed by 5% of employees, meaning if they’re doing it once, they’re likely a repeat offender, as is alleged with Troy Kelley. ACFE research found that in over 75% of cases involving T&E fraud, the same person is involved in fraud of some other type.
In Kelley’s case, the US Justice Department has alleged that Kelley failed to properly refund over $1.46 million in work he did related to property title transfers from the lender to the property owner. Allegedly stealing over $1 million is one thing, but what has led to the ten-count indictment is the combination of other allegedly fraudulent activities that Kelley is said to have performed. These include false reporting of refunds through fictitious spreadsheets, concealing funds by rapidly moving them between numerous bank accounts, lying in the course of depositions and sworn declarations to the Court, tax evasion, and filing false tax returns. While there have been no charges related to the US Justice Department indictment, there was a fire that Kelley claimed had destroyed all records of these transactions.
While all of these alleged activities occurred in the private business dealings of an individual, that individual is an elected official responsible for ensuring integrity and assurance in his state’s affairs. A state, by the way, that has a reputation as one of the least corrupt.
I think there are some lessons here that apply to the T&E, purchase card, and accounts payable programs that our solutions monitor and analyze every day. First, unexpected things occur in even the best-run organizations. Well-run companies with effective policies and procedures have issues just like states with reputations for avoiding government corruption. Second, the high correlation between unexpected activities in one area with unexpected (and unwanted) activity in others indicates the value of understanding when unexpected things occur. Third, when the heat increases so does the survival instinct thereby increasing the likelihood that steps will be taken to conceal activities.
Even in the case of a state auditor, an individual tasked with finding fraud, you can never be too sure that fraud isn’t happening. This is why an impartial, unemotional technology solution that puts everyone and every transaction under the microscope is an effective tool as part of ensuring compliance.
While I don’t have any easy answers for the lenders and borrowers who were allegedly bilked by Kelley, I do have some suggestions for governments and businesses that may have staffers who are doing things that their employers don’t suspect. Our solutions for automatically monitoring and analyzing 100% of payment transactions for fraud, waste, abuse, and errors can identify the riskiest individuals, suppliers, and items. This information can be used to narrow the field of vision and raise awareness to identify similar activities happening in other parts of the organization. In all organizations and for most processes it is important to inspect what you expect.