Fraud in Capital Projects and the Construction Process

GUEST BLOGGER

Denise Cicchella, CFE, CIA, CCA, PMP
CEO, Auspicium

Tishman, Bovis Lend Lease and Structure Tone are companies known around the world for their quality craftsmanship and superior quality of work, but now they are becoming known for other qualities they hope will soon be forgotten. In many construction projects, whether residential or commercial, there is money doled out to a contractor that is not earned. But over the past few years, we in the industry are seeing construction fraud schemes hit the headlines more and more.  

Take the following examples:

The benefit, if there can be a benefit from fraud, is that organizations and owners are using this as an opportunity to look for fraud, find errors and more tightly control their projects. It is no longer an environment of, “Yes, I know it is happening but what choice do I have?” It is an environment of, “Yes, I know it is happening, now what can I do to stop it or to minimize my losses?”

Some of the top areas for fraud in construction projects are duplicate payments, conflicts of interest, padded billing, fictitious vendors and payroll fraud in the form of ghost employees. Statistics on fraud versus error might be skewed, as owners are more interested in recovering money than pursuing prosecution. With that said, construction fraud and procurement fraud are still high ranking in the ACFE's Report to the Nations.

I, for one, have taken a stance to educate and train organizations about how to audit capital and construction projects, what to look for to identify a project as a problem, and the next steps to take when recoveries do not go their way. I have seen organizations take a more proactive stance in project involvement, and I have seen auditors, construction auditors or operational auditors take more of a position to question why things happen rather than just blindly accept what is said. With these steps forward, I am hopeful that we can reduce the prevalence of fraud and error in capital projects.

You can learn more about fraud in capital projects and the construction process by attending my upcoming ACFE webinar, Fraud in Capital Projects and the Construction Process, September 25, 2014, at 2 p.m. EST. 

 

Native Texan Pioneers Fight Against Dental Fraud & Embezzlement

MEMBER PROFILE

Bryant Truitt, CFE 
Founder and CEO 
Brytan & Associates, Inc.  
San Antonio, Texas 

Bryant Truitt, CFE, Founder and CEO of Brytan & Associates, Inc. found his calling in preventing health care fraud, specifically for dentists and oral surgeons, over a casual conversation with his dentist more than 15 years ago. “I was in my dentist’s office when he admitted that he’d been ripped off for $54,000. I said I’d like to look into it for him. Within a week, an oral surgeon friend told me he’d been ripped off for $120,000,” Truitt said. “I was seeing a terrible pattern — people who worked long, hard hours to help others were losing their futures. I wanted to help.” Truitt started his own firm shortly after that visit to his dentist, and now has clients all over the U.S. and Canada. He and his team have helped more than 400 practices fight back against the fraudsters who stole from them.

How did you become passionate about fighting fraud?  
I have such a high regard for the health care providers who work hard and don’t deserve to have people they trust steal from them or abuse their jobs. I am passionate because I have such a wonderful team to help me who also want to make a difference. Together, we have more than 100 years of dental and health care experience. We put a lot of effort into staying current on health care best practices, as well as the fraud research and information from the ACFE. We get a chance to work with top CPA firms, defense attorneys and practice management companies in the U.S. and Canada. And, finally, it’s easy to be passionate when I see people learn how not to be victims of fraud or embezzlement because of what I’ve said or taught them.

What do you wish someone had told you about your career when you were just starting out?  
Most of our clients come to us after the crime has been committed. I wish someone had told me when I was starting out that although people are concerned, they think that these crimes only happen to others. I also wish someone had helped me see that even those who want to make corrections in their business practices literally have no time, let alone energy. When you work straight through 32 hours a week, this only leaves eight hours to manage a practice. The fraudster or embezzler has all 40 hours to come up with and put schemes in place, set up gangs, etc. while their boss thinks they are only doing the work assigned to them. I don’t believe we will ever totally prevent fraud. But if you take action, you can slow it down or lower the losses. Unfortunately, it’s difficult to communicate to clients the real value of taking those actions and doing the investigation. To someone new to fraud, this can be hard to understand or take.

What advice do you have for those looking to open their own business or consulting practice?  

To make any business idea successful there has to be an underserved market. My best advice is to find that market using strong research practices and a realistic business plan. Then, make sure you can add true value to these customers. You must also be willing to struggle and deal with selling an intangible that, if you do it right, they won’t ever see because there will be no losses. Be available, be a great listener, and be well-organized, flexible and passionate.

Read Bryan's full profile in the ACFE's online Career Center.

My First Time in Prison

GUEST BLOGGER

John D. Gill, J.D., CFE
ACFE VP of Education

The stories are true. When a three-inch thick steel door (operated by a correctional officer behind bullet-proof glass) closes behind you with a deafening metal “thud,” you realize you are in a different world. You are not free to do as you like. Where you go, where you sit and what you can carry on your person are tightly controlled. And although this seems eerily similar to flying on a commercial airliner, this environment was completely new to me, because, as I will explain, this was my first stint in prison.

Fortunately for me, my time “in the joint” only lasted a couple of hours. I traveled to Livingston, Texas, to visit a prisoner, Steven Jay Russell. Russell stole about $800,000 from his employer, and now he is serving a life-sentence in a Texas maximum-security prison. Now Texas does have a reputation for stiff sentences, but the life sentence was not for the fraud he originally committed. You see, Steven escaped from prison four times. And as he found out, the state of Texas does not take kindly to its prisoners walking out the door without permission.

Russell’s case has obtained some notoriety. He has been the subject of several articles and a book: I Love You Phillip Morris: A True Story of Life, Love, and Prison Breaks by Steve McVicker. The book was adapted into a movie in 2009 starring Jim Carrey and Ewan McGregor.

I wrote to Russell earlier this year to see if he would be interested in talking to me. It might surprise you to learn that I write to convicted fraudsters quite often. Before the ACFE was founded in 1988, Dr. Joseph T. Wells, CFE, CPA, discovered that a great deal can be learned about fraud by talking to the people who commit it. He and Jim Ratley, CFE, have interviewed dozens of offenders, and they were fortunate enough to have videotaped most of these. These clips have been used in our training courses for more than 25 years.

I have also enjoyed interviewing fraudsters. You can learn a great deal about what motivates these individuals. In Russell’s case, it was simple greed he wanted money.

Originally, he had a good job working for a food service business, but he was fired (he alleges) for being homosexual. To earn money, he began a series of insurance frauds – mainly “slip and fall” cases in retail stores. He soon got caught and received a three-year sentence. While in prison, he met Phillip Morris, and they fell in love. Later, Russell and Morris were released on parole and started a life together. But Russell did not want to settle for second-best.

Needing a generous income, Russell falsified his résumé to get hired as a chief financial officer for a medical management company. This company typically made payments to physicians on behalf of insurance companies. If a payment was returned by a doctor because it couldn’t be verified, Russell would simply deposit the check in a separate company bank account he opened. He withdrew money from this account to fund his increasingly lavish lifestyle. Over the course of just a few months, he stole around $800,000.

He wasn’t caught by management, internal audits or external audits. He was tripped up when he used funds from the company account to refinance his home mortgage. The bank thought it suspicious that funds for the down payment were coming from a business account. They called the company to verify, and the jig was up.

Russell received 45 years for his embezzlement, but not to be deterred, he escaped soon after by using highlighters to dye his prison uniform green and walk out of the prison infirmary posing as a doctor. But this ingenious escape did not stop him from getting caught and going back to prison. His escapes and frauds are chronicled in the book and the movie. He faked an AIDS diagnoses and symptoms to escape from a treatment center, and he posed as an attorney, a judge and an FBI agent to get either himself or Morris transferred or released from various confinements.

Ultimately, he was sentenced to more than 150 years in prison for both the frauds and the escapes. His release date is July 12, 2140. Presently, he is in solitary confinement, and has been for the last 18 years. He is released one hour a day to shower and exercise. He has no physical human contact whatsoever. When I spoke to him, Russell was sitting in a small booth with bullet-proof glass in the front and steel bars in the back. We spoke using telephone receivers beside the glass.

Amazingly, he is not bitter. In fact, I found him quite likable. He says solitary has given him a lot of time to think (no argument there), and he is certain that he will not repeat his mistakes. He says that despite his long sentence, he is hopeful that he may get paroled in the next five years. I would love for him to speak at an event to illustrate that sometimes trust can be misplaced. Russell was a master at gaining trust, and then using that trust for his own purposes. Listening to his story is a reminder to stay on guard, and that even the most likable person can have an ulterior motive.

I am asking the prison officials for permission to conduct a video interview to record more about his story and share it with ACFE members.

If you know of a fraudster who might be willing to be interviewed, please contact me at JGill@ACFE.com. I am looking for anyone who is willing to talk. I am willing to interview them almost anywhere, but I’ll have to confess, I would rather interview them in a hotel meeting room, and not behind barbed wire and steel doors. My few hours in a maximum security prison were enough for me to give up all my criminal plans.