Proving Intent in Fraud Cases

Why do people comply or not comply? For Audrey Milesi, CFE, ACCA, ACAMS, Founder of Flying CFO, this question is at the heart of proving intent in fraud cases. “Proving the facts doesn’t mean you have proved the intent,” said Milesi to attendees of the 2018 ACFE Fraud Conference Europe, recently held in Frankfurt. “It’s not just about going to court and having a good case. It’s about [determining] what fraud is for you.”

By analyzing four case studies, Milesi outlined two major factors that may make it difficult to prove intent, even when you — as the investigator with all the facts before you — know that fraud has been committed.

A lack of compliance framework benefits the fraudster
Before starting her own company, Milesi worked for a small grocery chain. They didn’t have the resources to put video cameras in every store, but they knew they had a theft problem and wanted to put controls in place to prevent future theft. They started by looking for existing fraud cases. Someone had recently reported a longtime employee taking petty cash from the till. Upon further digging, Milesi and her team discovered that the ledgers at this particular branch had been off for quite some time.

During her interview, the employee broke down crying and explained that she had been taking money for a while because her son was sick and needed expensive medical treatment.

The employee was a close friend of the branch manager, so this case proved to be particularly tricky to navigate. The employee and her son were practically family, and her son was indeed very sick. In the interview, she repeated several times that she never intended to hurt the company; she only wanted to help her son.

The organization didn’t have any controls in place before the employee was caught, so there were no policies that indicated she should be terminated. In her report, Milesi said the employee’s intent was to defraud the company, but the company disagreed and said her intent was to help her family. They didn’t press charges and came to an agreement with the employee instead. “You cannot skip the human part of that [investigation], but it is still theft,” Milesi concluded.

Internal politics can be tricky
In another case, Milesi explained that when a new CEO came on board at her organization, he thought, “There’s something dodgy about these expense reports.”

Upon further investigation, Milesi and her compliance team found a lot of discrepancies with one of the vice presidents, the biggest one being that he took his spouse on almost all his work trips. This ended up costing the organization more than $250,000 over the course of two years. He’d rationalized it by telling himself that extensive traveling should not disrupt his family life.

They’d been investigating him for a while, even conducting a few interviews, but each time he dodged their accusations of noncompliance by claiming, “Oh, I didn’t know that was our policy,” or something similar. However, they finally caught him when he was back home in Switzerland while his wife stayed in San Francisco for two weeks, using the corporate credit card the whole time, spending more than $15,000.

When the CEO took Milesi and her team’s findings to the board, the board ordered them to stop pursuing the case because this vice president was good friends with someone on the board. The CEO issued an oral warning to the vice president anyway. The VP said he would try to comply, but after six months, the new CEO left. The old CEO who’d originally hired him came back, and the VP started up with noncompliance again.

When Milesi shared this last example, attendees in her session let out gasps of shock and frustration. When someone asked her what she did, she told attendees, “That was it for me. I left.”

As Milesi advised at the beginning of her session, investigators and fraud examiners have to understand their own definition of fraud and where their personal boundaries exist. Then, by knowing the existing framework and understanding the internal politics involved, fraud examiners can manage their expectations in regards to proving intent.