GENERAL COUNSEL GETS CREATIVE

Corporate Counsel reports that the former general counsel for Children’s Hospital of Philadelphia has been charged with mail fraud, money laundering, and filing a false tax return after allegedly using his senior position to embezzle US $1.7 million from the hospital between 1999 and 2011.
 

According to information filed by the U.S. Attorney’s Office for the Eastern District of Pennsylvania, the former general counsel created shell companies for the purpose of stealing money through false invoices he created for those companies. The information alleges that he created fraudulent invoices while coordinating the defense of medical malpractice claims against the hospital as well as submitting false invoices for work related to the community and government affairs function of the hospital. The U.S. Attorney’s Office said the former general counsel used the money to live a “lavish lifestyle, purchasing luxury items.”

Lessons Learned

Because fraud is often difficult to detect, a scheme may continue for an extended period. Fraudsters can switch from one scheme to another to avoid detection or move on when control weaknesses and opportunities are no longer present. In this case, the alleged fraudulent activity began in 1999 and continued until 2011. During this 12-year period, the U.S. Attorney’s Office said numerous fraud schemes were perpetrated, some of which involved elaborate means to conceal the fraud (e.g., creating shell companies and false invoices).
 
These types of cases illustrate a typical trait of fraudsters — they rarely are satisfied. While frauds may start out small, they can grow in size and complexity if not detected early. Senior-level employees can exploit their position and a lack of segregation of duties to create invoices and approve payments for work not performed.
 

Internal auditors should remain vigilant for typical red flags, such as employees living beyond their means by purchasing real estate, high-end automobiles, and other big-ticket luxury items. Auditors also need to be aware of fraud risks like inadequate segregation of duties and lack of adequate monitoring controls.


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