Crooked, Scenario 1 You work for a litigation support firm
Crooked, Scenario 1
You work for a litigation support firm, Sump, Tings, Fishy & Associates (STF), based in Fargo, North Dakota. Among other things, your firm specializes in assisting law firms in fraud cases. This requires all your associates to sit for and become Certified Fraud Examiners (CFE). You also employ CPAs, CIAs, CISAs and other credentialed professionals.
Although you assist in all kinds of fraud-related cases, your specialty is construction-related fraud. The nature of your day-to-day business is to gather evidence; to perform investigations which include compiling and analyzing data, conducting forensic reviews on financial statements and other financial information; to assist in creating witness files for trial; to testify as an expert witness in legal proceedings, etc
On the sixth of June, 2006, (6/6/06), following a particularly delightful lunch at one of Fargoâs best Thai restaurants, Hellâs Kitchen, you return to your office and to a very intriguing phone message from a Louisiana attorney, Bubba Thibodaux. You immediately return the call and learn the following:
A law firm, based in Baton Rouge, Louisiana, Steamy, Muggy and Dank (Steamy), has an oil field client from Houston, Texas, Just Drill Baby (Drill), who has hired a sub-contractor in North Dakota, Cee, Rook, Ed & Partners (C.Rook.Ed Partners or CRookEd Partners or CRookEd, dba Jefferson Construction Company, to protect the guilty), to assist them (Drill) in an oil pipeline being constructed in North Dakota along I-94 from Fargo to Bismark, a distance of some 200 miles.
It seems the contract between Drill and CRookEd Partners was around $50 million, but has ballooned to over $125 million. You further learn that Drill is a multi-billion dollar corporation, and the contract between Drill and CRookEd Partners was not monitored well at Drillâs corporate headquarters due to a recent lack of an internal audit function, and because the contract with CRookEd was relatively small for Drill. You off-handily suggest to Bubba that your firm also performs internal audit functions and would be interested in visiting with Drill to help them set up some proper controls around their contracting, and other, processes. Jokingly, Bubba declines stating Drill is one of Steamyâs best clients and the fewer controls means more lawsuits, which means more business for Steamy.
Several months ago, an alert A/P clerk at Drill was approving invoices for payment when she noticed a payment request from CRookEd Partners for reimbursement for a deductible expense on a car accident claim. Typically, this A/P clerk did not approve invoices from CRookEd. The person who normally approves these invoices was out of the office on vacation. He was opposed to taking the vacation, but his supervisor insisted because it had been months since he took even a dayâs break. This A/P clerk even tried to sneak into the A/P department on the day the CRookEd invoices were approved and confronted the person doing his job, the other A/P clerk, suggesting that he, the normal approver of the CRookEd invoices, was better suited to approve CRookEdâs invoices because of the complexity of the process. The female A/P clerk refused.
When she mentioned the confrontation to her supervisor, the female A/P clerk learned the other A/P clerk used to work with the then-current internal audit director for Drill at another oil company in Houston, and the then-current internal auditor had recommended that the male A/P clerk get the CRookEd invoice approving job because he was well qualified to do so. The A/P supervisor was not opposed to the suggestion and hired the A/P clerk. There has been some signs that the male A/P clerk is living way beyond his means, considering his salary is only $45,000 and he drives a BMW and lives in a very upscale neighborhood.
It seems a CRookEd employee, Mack T. Knife, VP of Labor Union Affairs, had gotten into an accident one night in a car rented for his employment with CRookEd. The insurance company paid the claim on the car accident, but the CRookEd employee had a $1500 deductible; the $1500 was paid by CRookEd and then they requested a reimbursement, plus a 25% uptick on the $1500 because CRookEd reasoned Mack âwas on duty after hoursâ as per the contract, which allowed for a premium on expenses if certain individuals were working after hours. Due to this relatively minor discovery by an alert A/P clerk, a snowball effect had taken hold of the entire contract with CRookEd.
The reason this invoice caught the A/P clerkâs attention is she had just approved a payment to CRookEd for daily travel expenses in the amount of $800,025 for the month of December, 2005. Per the contract with Drill, CRookEd was to receive $100 a day for each employee on the site to cover travel expenses (gas, mileage, etc.). This amount was agreed upon to make travel reimbursement expenses easier to track and pay; i.e. by setting a standard daily amount, the hassle of making and submitting daily or weekly travel expenses was avoided. It was a matter of identifying how many folks were on site for how many days and multiplying that number by $100. Otherwise, an inordinate amount of time would be wasted by CRookEd employees keeping track of receipts, submitting them and then waiting for both CRookEd and Drill to approve them. The Drill A/P clerk rightly reasoned why would someone who is receiving a daily travel allowance need to rent a car? So she looked into the matter.
The CRookEd employee in question was returning to his hotel in Bismark from a bar in Bismark, the Peacock Alley American Bar & Grill, where he had been meeting with the North Dakota Teamsters Union Local 123âs president, Jimmy Hoffa XVIII. Mack had been âgreasing the skidsâ with Hoffa over heavy equipment and other no-show job arrangements. Jimmy could slow down progress on the pipeline too much by calling a strike if he chose to, so Mack felt it was in the best interest of both the union and CRookEdâs interest to keep everyone happy.
That night, Jimmy walked out of the Bar with a nice fat wad of dough for his cooperation. The money came from CRookEdâs pension plan, of which Mack was the treasurer. Mack was certain the deal on the pipeline would more than make up for any payments to Jimmy, and Mack would pay back the pension funds as soon as the money from Drill began to flow. However, Mack knew he would also have to falsify CrookEdâs financial statements to account for the missing pension funds as the bank was going to want to see the statements in the next few days. He was a little concerned about having to falsify the financial statements because that would require him to manipulate his daughter, Kat T. Knife, who was the innocent controller of CrookEd.
Despite his minor misgivings in manipulating the financial statements and his daughter, Mack had been given instructions from his superiors to âdo whatever he needed toâ to make sure he got the Teamsters âfull cooperation.â And, he reasoned, a lot of previously unemployed North Dakotans would be going back to work thanks to this deal. The local economies would blossom and the countryâs economy would benefit from the new-found oil reserves that would be flowing through Drillâs pipeline. Heâd make it up to his daughter by buying her a new car with the bonus he was certain to receive for his efforts.
Both Mack and Jimmy wanted as many no-show jobs as possible because the contract between Drill and CRookEd was a âtime and materialâ contract. The longer it took to build the pipeline, and the more no-show jobs in place, the more money each would receive for doing little or no work. The only question was how many no-shows should there be? Jimmy wanted 50, and Mack was prepared to offer 30. The idea was to make it appear the pipeline was making progress, but that it not be completed too soon.
There were other unions, over whom Jimmy did not preside, but over whom he did have influence, and whom CRookEd would need to use in the pipeline project. Mack was prepared to offer the presidents and local representatives of these unions lavish trips and cruises if they ensured things ran smoothly in their respective realms of influence.
As Mack pulled into the parking lot of his hotel, his vision was a little blurry and his head was not right from the 15 7&7s he had consumed at the Peacock Alley Bar. Mistaking a large Paul Bunyan statue left over from the movie set of Fargo, situated in the parking lot of the motel, for his own father, Mack decided to run down the statue. Mackâs father Ed had helped to start CRookEd and had passed over Mack for Mackâs brother, Stagger Lee, to run CRookEd after his, Mackâs fatherâs, death. Mack had never forgiven his father.
The Bismark police showed up on the scene and charged Mack with a DUI, arrested him and put him in jail. However, even in his drunken stupor, as the police officer was attempting to arrest Mack, he pulled out a wad of cash and offered it to the arresting officer to keep him (Mack) out of jail. Mack had a deathly fear of closed, confined spaces due to a spelunking-type accident he suffered as a child. One day when Mack and Stagger Lee were children, they were playing near a mine in Devilâs Lake, North Dakota, and Stagger pushed Mack down a shaft and left him for dead. The shaft was 100 feet deep, but not much more than two feet wide. Mack was lodged about 15 feet down the shaft upside down. He lay there for two or three days and as the vultures began to circle, another group of kids were playing nearby and noticed the vultures and went to the shaft. Among the other group of kids was Jimmy Hoffa XVIII. The group pulled Mack out of the shaft and a fast and long-lasting friendship developed between Mack, Jimmy and the other children. Many of the other children also became union officials and North Dakota politicians.
As your conversation with Bubba continued, you learned that the contract between Drill and CRookEd had been signed about two years before the car accident with Mack. Steamy had employed a local Baton Rouge CPA firm, Craw, Daddy, LLP (Daddy) to initially perform something of a review of the volumes of information Steamy had received from Drill and CRookEd Partners as the two parties prepared for trial.
One item was of particular interest. CrookEd employed the South Dakota CPA firm of Inn, Kaw, Hoots (IKH) as their accountants, and all arrows pointed to collusion between CrookEd and their CPA firm, IKH, in manipulating their financial statements. Daddy had even found two sets of CrookEd financial statements for the same period and they were wild different.
The Baton Rouge firm, Daddy, however, was not quite up to the task of performing the required tasks, so Drill began looking for a North Dakota firm to assist. Your firm had come highly recommended.
Another potentially fraudulent activity that occurred related to some Native American relics that were discovered during the digging of the pipeline. Just outside of Fargo, some CRookEd employees discovered some rock tablets with intricate designs. The employees took the tablets to the local university and learned the tablets were similar to the Mayan calendars from Central America. These tablets, however, were written in a form of the Sioux language; the Sioux being indigenous to the area. Like the Mayan calendars, these tablets predicted the end of the world sometime in late December 2012. Fortunately for CRookEd, they reasoned, the pipeline would be done by then. The professor was told by the CRookEd employees that it would be best if she âforgotâ about the meeting and tablets. When she refused, the CRookEd employees reminded her they had built her house, knew where she lived and remembered the names of her pets.
Despite the attempts to keep the discovery of the tablets quiet, the local Sioux chief heard about the tablets and requested a meeting with CRookEd. Stagger Lee and his attorneys met with the chief and offered him $100,000 for the tablets. When the chief refused stating the tablets belonged to him and his tribe and should be turned over to the Sioux, Stagger mentioned that the contracts between CRookEd and the Sioux to build several Indian casinos may be âdelayedâ because the work on the pipeline would take precedence. The chief got the drift and agreed to the $100,000. Stagger subsequently sold the tablets to the Smithsonian for $3,000,000. CRookEd immediately began construction on three new Indian casinos and they were completed several months early.
Steamy also had learned that there were only three firms who bid on the pipeline project. Due to the intertwining of construction firms in North Dakota, the other two firms who bid on the project were owned and controlled by relatives of Stagger Lee and Mack. They were subsequently offered small portions of the work which CRookEd could not do in a timely fashion. It was further learned that the former internal auditor for Drill, Bill âBuffaloâ Cody, used to date Stagger Leeâs and Mackâs cousin, Calamity Jane IV. This Calamity Jane was a direct descendant of the famous Black Hills, South Dakota Calamity Jane and Wild Bill Hickok. The former Drill internal auditor was instrumental in introducing Drill to CRookEd and helped in the negotiations before, during and shortly after the contract with CRookEd was signed. He also abruptly quit his job with Drill shortly after the CRookEd contract was signed. He now lives in Tahiti, having suddenly come into a lot of money.
Obviously, as you hung up with Bubba, your head was swimming with all the information he had shared with you. You also knew there were a number of fraudulent claims expressed in the conversation. You decided to sit down and do two things (which interestingly corresponds with your Team assignment for this scenario):
As a team you will:
• Discuss the above scenario.
• Categorize the various players into their respective roles, companies, etc.
• Analyze the above information and categorize each claims as a form of fraud (asset misappropriation, financial statement manipulation or corruption) and further categorize corruption activities (kickbacks, bribery, conflicts-of-interest, economic extortion, illegal gratuities, bid rigging, etc.).
• Create and submit a âmemoâ of words to your boss summarizing the above actions.
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