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Welcome to the redesigned Risk Management Plus+ Online, a robust website brought to you by Travelers designed to help you mitigate your management liability and crime exposures. The new Risk Management Plus+ Online includes articles, checklists, best practice minute videos, podcasts, and a sample employee handbook to help you manage not only your employment practices risks, but also cyber, crime, directors & officers, fiduciary, kidnap & ransom, and identity fraud exposures. The site has been redesigned to provide this content in a streamlined and efficient manner.

Prevent Massive Fraud By Looking For Document Fakes And Manipulation

The U.S. Department of Justice has announced the sentencing of the 51-year-old former CEO of ValueWise Corporation, of Clifton Park, New York, as well as subsidiary companies, including MyPayrollHR.com LLC, to 144 months in prison for fraud.

The fraudulent conduct caused more than $100 million in losses to banks, financing companies, and other businesses. The defendant misappropriated of millions of dollars entrusted to payroll companies that he owned.

In addition to the prison sentence, the defendant was also sentenced to three years of post-imprisonment supervised release; to pay restitution to victims in the total amount of $101,038,793.31; and to forfeit assets already seized by the Government, including $14,522,474.90 contained in bank accounts, as well as 30,000 common shares of a bank.

The defendant admitted that from 2013 to September 2019, he engaged in a fraudulent scheme to deceive banks and financing companies into loaning his companies tens of millions of dollars.

Because he could not repay the loans with legitimate business revenues, he expanded the fraud by stealing and diverting millions of dollars that were entrusted to his payroll companies and engaging in the daily kiting of millions of dollars among bank accounts he controlled. "ValueWise CEO Michael Mann Sentenced to 144 Months in Prison for $100 Million Fraud" www.doj.gov (Aug. 04, 2021).

Commentary

In this case, the defendant obtained tens of millions of dollars in loans from financing companies by falsifying his companies’ revenues and receivables.

He created fake invoices reflecting the fictitious debt and assigned them to the financing companies as collateral for the loans. He fraudulently obtained a line of credit from several banks by creating companies whose sole purpose was to further the fraud by generating fake invoices, disguising sources of funds, and artificially inflating assets.

Finally, he misappropriated payroll monies by changing the instructions for digital Automated Clearing House (“ACH”) files that were supposed to transmit payroll from customers (employers) to the employees of the customers.

Many of these fraudulent tactics involved the creation of false documentation which was then presented to creditors. Although not on the scale as that found in this case, similar tactics are used by ordinary bookkeepers, secretaries, or other corporate officers to embezzle from their employers.

Embezzlers will often provide false or altered documents designed to hide the theft. It is only when those documents are compared with the originals that a commission of a crime can be confirmed.

As the owner, board member, or otherwise responsible person in a business entity, take steps to prevent similar types of fraud in your organization.

Ensure that all original bank or financial documents are archived, or any electronic versions are sent to more than one recipient for archive purposes, and not only to the company financial officer.

Original financial records must be carefully maintained and preserved. These documents not only help you monitor performance and profitability but also ensure your organization is adhering to required practices (e.g., filing taxes annually, maintaining confidentiality, etc.). These documents include payroll records, invoices, receipts, and other financial statements.

If an employee is embezzling funds, they may be deliberately destroying documents in their possession or manipulating software to erase any evidence of their behavior. An original, unaltered set of records can provide the benchmark to detect altered documents.

Create an oversight system. Be generally familiar with the numbers produced by the accountant and with the general expenses of the company and look closely at anything that appears out of place. Never assume the accountant will not make mistakes. Require monthly reports and question closely anything that is confusing or unclear. Always require access to original documents and statements, and do not rely solely on spreadsheets or summaries prepared by the financial team.

Finally, have a policy of record retention. Many cases of embezzlement go on for years before being detected. Retaining digital copies of original bank records, databases, checks, software audit logs, and client files is inexpensive, but critical for investigators in the event of embezzlement.

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