Fifty Shades of Fraud Part II

By Ben P. Lee, CPA, CFE, CFF, CGMA, CGFM, CGFO Managing Member, Coastal CPAs, LLC

CASE II: Ms. Politician Living “High on the Hog” at Taxpayers’ Expense.

Ihope you found Case I interesting. Case II involves a very lengthy investigation of an elected government official. I’ve handled many cases in Georgia involving constitutional officers in County governments in each of the statutory offices: Tax Commissioner, Clerk of Court, Probate Court and Magistrate Court. Because the offices are established by the Georgia Constitution, these elected officials are called “Constitutional Officers.”

Each Constitutional Officer acts as an agent for their County, as well as other governments and agencies. They have a fiduciary responsibility to follow due care in the operation of their office, including preparing and preserving accurate and transparent accounting records. Additionally, to report all financial activities in a timely manner (especially amounts collected and due to others) and provide timely and accurate payments to all parties with which there is an agency relationship. Accountability and transparency are important democratic values, and the Constitutional Officers of county governments must be held accountable both to the taxpayers and citizens who empower and are served by them, as well as to the states in which they are created. The State of Georgia, county governments, taxpayers, and citizens retain a stake in their performance.

The Oath of Office of a Tax Commissioner states, “I do swear that I will faithfully discharge the duties required of me by law as tax collector and that I will diligently collect all taxes required by law for me to collect and faithfully pay these over to the persons authorized to receive the same. So help me God.” Unfortunately, Ms. Politician’s attitude in our case was that she was not accountable to anyone, she controlled her “kingdom.” This Georgia Tax Commissioner was an expert at getting votes and funding the lifestyle that she and her whole family (children, in-laws and grandchildren) enjoyed courtesy of the taxpayers’ resources. She misappropriated assets of the County and other governments through “theft of cash and manipulation of records.” Ms. Politician had her own private “piggy bank!” She rationalized her behavior by telling herself that she was entitled to more resources than her salary.

Ms. Politician was very skillful in deceitfully displaying herself as a wonderful helpful person like “Aunt Bee” in the Andy Griffin show! She went to almost every funeral in the County, purchased flowers for each one, sent birthday cards to all of her known supporters and provided many other favors. “Other favors” for her most loyal supporters meant their tax bills would not have to be paid. How could you not vote for Ms. Politician?!

The CPA performing the County audit for several years could never obtain evidence to verify the amount of Motor Vehicle Ad Valorem tax. The records were in such disarray, with many nonexistent, making it an impossible task. He reported his findings regarding this situation each year to the County Commissioners. Ms. Politician would tell the Commissioners that the CPA was a terrible auditor, was too demanding, requesting records that were not necessary, and trying to support some other person that wanted to run for Tax Commissioner. “The auditor was just out to get her!” This worked for a while, until the State Dept. of Motor Vehicles paid a visit. She told the state that the CPA had all the records and she could not provide them. It was easy for the State to verify that was not the case. They smelled something worse than a skunk and dug deeper, getting the District Attorney and GBI involved. Soon Ms. Politician was in court. Her defense attorney managed to rattle the CPA, who was inexperienced in testifying on a witness stand, and did an excellent job in making it appear as if a personality conflict existed and that he was wrong. The jury bought it and acquitted Ms. Politician, under the belief that Ms. Politician was a very good person and she would never do the things she was accused of.

The GBI, County Commissioner, District Attorney and many citizens were upset with the result. During the GBI investigation, the County exercised its duty under Georgia law and the Governor removed Ms. Politician from office and appointed a temporary Tax Commissioner to complete her term.

During this time, I was a consulting instructor for the University of Georgia Institute of Government and a partner in two CPA firms, one that exclusively performed audits of local governments. During the investigation, the County solicited my governmental audit firm to become their audit firm beginning the next fiscal year. The trial ended during the summer and the County’s year end was December 31. Neither my partner and I, nor many others, thought that Ms. Politician would be interested in being Tax Commissioner much less, be elected. But in November, she was elected to take office on January 1. We began our field work in May of that year. At the request of the Commissioners, we began our audit procedures with testing in the Tax Commissioner’s office.

The tax commissioner is required to provide annually an account of his or her official actions respecting the county taxes and funds and to make his or her books, vouchers, accounts, and other things pertaining to his or her office available for inspection by the county governing authority. So legally, she had to let us in her office.

All of the teller drawers were full of currency, over $100,000 of currency. Many undeposited checks from taxpayers for property taxes were in a tray on Ms. Politician’s desk that were dated several weeks prior to the date of the procedure.

Ms. Politician had not complied with required payments on a timely basis in accordance with Georgia law, actually no payments. For this size County, the law requires the Tax Commissioner to remit all collections every two weeks. The County’s cash flow was under duress. The books and records were again in disarray and auditing was restricted by Ms. Politician. Ms. Politician told the Commissioners that she was an elected official who could run her office as she saw fit and they could not force her to do anything.

Based on consultation provided by the County Attorney and myself, the County Commissioners engaged our firm to perform an additional engagement that was different than a financial statement audit. This engagement was a Litigation Support/Fraud Investigation with the County Attorney. Unfortunately for Ms. Politician, this was not my first rodeo! Detailed next is how we proceeded:

A new Governor was requested to remove Ms. Politician from office. This Governor said he was not getting involved in local politics. The Commissioners did not want the GBI to be involved again because of the previous case. They didn’t feel the GBI did enough for them. I consulted with the County Attorney and we developed a request to the Superior Court Judge through a “Writ of Mandamus” placing requirements on the Tax Commissioner. Since the County received federal funding I contacted the FBI for assistance. Over a three year period, the FBI agent and I, through the subpoena power of the U.S. Attorney and covert procedures, used the “Net Worth Method” investigative technique, a method that proves you are spending more money than your legitimate resources.

At some point in the theft process the Fraudster has to convert the stolen assets to currency, so they can spend it or conceal it. Now you understand why Ms. Politician kept so much currency in her office and she kept the accounting records in disarray. Most people pay their taxes by checks, so how did she convert all these checks to currency? She would tell as many taxpayers as she could to write the checks out to “Ms. Politician Tax Commissioner.” (In Georgia, checks should be payable to, i.e. Glynn County Tax Commissioner.) She held the checks in her desk for a few weeks and then took them to a bank where she had convinced a young teller that she needed a cashier’s check to pay the County and it had to be payable to Ms. Politician. Then she would take the cashier’s check to another bank where she convinced another teller to cash the check for her. Both bank presidents were astounded that this had happened and for so long.

Covertly we were able to determine where she was spending the currency. She bought groceries, clothes, car purchases, car insurance, utility bills, mortgage payments, etc. for herself and her family members using currency as the method of payment. She even got better pricing by using cash sometimes! Through the process of many subpoenas and dispositions, we obtained evidence of almost all of her spending. We had proof beyond a reasonable doubt. This time her attorney begged for a plea bargain which included her resignation from office and a hefty restitution payment, but avoided jail time. The County Commissioners were happy, they just wanted her out of office. In a couple of years, they were able to lower the millage rate because the new Tax Commissioner was operating an efficient, effective, and compliant operation.

One might ask how something like this could happen. Simply put, a lack of oversight and verification of trust. So how should every organization accomplish that? Stay tuned, there will have to be a Part III!

Coastal CPAs, LLC is a local full-service accounting firm in the Golden Isles. One of the many services of the firm is Fraud and Forensic Investigations, Fraud Prevention consulting and litigation support. Ben Lee is a Certified Fraud Examiner and Certified in Financial Forensics.

512 Ocean Boulevard St. Simons Island, GA 31522 912.634.9977 www.mulletbayrestaurant.com Live Music on the Deck