Fifty Shades of Fraud: Part Two

By Ben P. Lee, CPA, CFE, CFF, CGMA, CGFM, CGFO

Managing Member, Coastal CPAs, LLC

Ms. Politician! “Living – High on the Hog” at Taxpayers’ Expense.

I hope Case 1 was some interesting reading for you. In case II I will share with you a very lengthy investigation involving an elected government official. I have been involved with many cases in Georgia which have involved constitutional officers in County governments, which are elected officials. I have dealt with cases in each of the statutory offices: Tax Commissioner, Clerk of Court, Probate Court and Magistrate Court. These are referred to as “Constitutional Officers” because they are established by the Georgia Constitution.

This was a case about a lady that was an expert at getting votes and funding her lifestyle as well as her whole family’s (children, in-law and grandchildren) courtesy of the taxpayers’ resources. She misappropriated assets of the County and other governments through “theft of cash and manipulation of records”. Ms. Politician had her own private “piggy bank”!

Each Constitutional Officer acts as an agent for their County, as well as other governments and agencies. They have a “fiduciary” responsibility to follow “due care” in the operation of their office – to prepare and preserve, accurate and transparent accounting records. Additionally, to report all financial activities in a timely manner (especially amounts collected and due to others), and providing timely and accurate payments to all parties for which there is an agency relationship. Accountability and transparency are important democratic values, and the Constitutional Offices of county governments must be held accountable, both to the taxpayers and citizens who empower and are served by them, as well as the states in which they are created. The State of Georgia, county governments, taxpayers, and citizens retain a stake in their performance.

The Oath of Office of a Tax Commissioner states, “I do swear that I will faithfully discharge the duties required of me by law as tax collector and that I will diligently collect all taxes required by law for me to collect and faithfully pay these over to the persons authorized to receive the same. So help me God.”

Unfortunately, Ms. Politician’s attitude was that she was not accountable to anyone, she controlled her “kingdom”. She rationalized her behavior by telling herself that she was entitled to more resources than her salary.

So much for the introductory background, let’s get into the case, which involved a Tax Commissioner in Georgia. Ms. Politician was very skillful in deceitfully displaying herself as a wonderful helpful person like “Aunt Bee” in the Andy Griffin show! She went to almost every funeral in the County, purchased flowers for each as well as sent birthday cards to all of her known supporters and many other favors! “Other favors”, for her most loyal supporters, their tax bills would not have to be paid. How could you not vote for Ms. Politician?

The brief details of the case:

The CPA performing the County audit for several years could never obtain evidence to verify the amount of Motor Vehicle Ad Valorem tax. The records were in such disarray and non existent it was impossible. He reported his findings regarding this situation each year to the County Commissioners. Ms. Politician would tell the Commissioners that the CPA was a terrible auditor, was too demanding, requesting records that were not necessary, and trying to support some other person that wanted to run for Tax Commissioner. “The auditor was just out to get her!” This worked for a while, until the State Dept. of Motor Vehicles paid a visit. She told the state that the CPA had all the records and she could not provide them the support. It was easy for the State to verify that was not the case. They held their nose, because this smelled worse than a “skunk”! Finally, the District Attorney and GBI became involved and Ms. Politician was in court. Her defense attorney did an excellent job in making it appear as if a personality conflict existed with the CPA and he was wrong. Unfortunately, the CPA was not experienced in testifying from the witness stand and the defense attorney got him upset and that did not appear well for the jury. Guess what, the “jury of your peers”, they acquitted her! “Ms. Politician was a very good person and she would never do what she was accused of”.

Of course, the GBI, County Commissioner, District Attorney and many citizens were upset. During the GBI investigation the County exercised its duty under Georgia Law (O.C.G.A. 48-5-145) and the Governor removed her from office and appointed a temporary Tax Commissioner to complete Ms. Politician’s term.

Now the rest of the story:

In this time period I was a consulting instructor for the University of Georgia Institute of Government and was a partner in two (2) CPA firms, one of which did nothing but audits of local governments. During the investigation the County solicited my governmental audit firm to become the County’s audit firm, beginning with the next fiscal year. The trial ended during the summer and the County’s year end was December 31. My partner and I nor did many others think she would ever be interested in being Tax Commissioner much less, be elected. Guess what, in November Ms. Politician was elected to take office on January 1. We began our field work in May of that year. At the request of the Commissioners, we began our audit procedures with testing in the Tax Commissioner’s office.

The tax commissioner is required to provide annually an account of his or her official actions respecting the county taxes and funds and to make his or her books, vouchers, accounts and other things pertaining to his or her office available for inspection by the county governing authority. (§48-5-140). So legally, she had to let us in her office.

We started our testing procedures with a “surprise cash count” in the Tax Commissioner’s Office. All of the teller drawers were full of currency, over $100,000 of currency. Many undeposited checks from taxpayers for property taxes were in a tray on Ms. Politician’s desk that were dated several weeks prior to the date of the procedure.

Ms. Politician had not complied with required payments on a timely basis in accordance with Georgia law (O.C.G.A. 48-5-142), actually no payments. For this size County the law requires the Tax Commissioner to remit all collections every two weeks. The County’s cash flow was under duress. The books and records were again in disarray and auditing was restricted by Ms. Politician. Ms. Politician told the Commissioners that she was an elected official and she could run her office as she saw fit and they could not force her to do anything.

The County Commissioner’s next steps:

Based on consultation from the County Attorney and myself, the County Commissioners engaged our firm to perform an additional engagement that was different than a financial statement audit. This engagement was a Litigation Support / Fraud Investigation with the County Attorney. Unfortunately for her, this was not my first Rodeo! Detailed next is how we proceeded:

A new governor was requested through (48-5-145) to remove her from office. This governor said he was not getting involved in local politics. The Commissioners did not want the GBI to be involved again because of the previous case. They didn’t feel the GBI did enough for them.

I consulted with the County Attorney and we developed a request to the Superior Court Judge through a “Writ of Mandamus” placing requirements on the Tax Commissioner. Since the County received federal funding I contacted the FBI for assistance. Over a three year period the FBI agent and I, through the subpoena power of the U.S. Attorney and “Covert” procedures, used the “Net Worth Method” investigative technique. To simplify, this method proves you are spending more money than your legitimate resources.

“The Currency”. At some point in the theft process the Fraudster has to convert the stolen assets to currency, so they can spend it or conceal it. Now you understand why Ms. Politician kept so much currency in her office and she kept the accounting records in disarray.

Most people pay their taxes by checks, so how did she convert all these checks to currency? She would tell as many taxpayers as she could to write the checks out to “Ms. Politician’s Tax Commissioner”. (In Georgia checks should be payable to, i.e. Glynn County Tax Commissioner.)

She held the checks in her desk for a few weeks and then took them to a bank where she had convinced a young teller that she had to have a Cashiers check to pay the County and it had to be payable to Ms. Politician. Then she would take the Cashiers check to another bank and convinced another teller to cash the check for her. Both bank presidents were astounded that this had happened and for so long.

“The Proof”. Covertly we were able to determine where she was spending the currency. She bought groceries, clothes, car purchases, car insurance, utility bills, mortgage payments, etc. for all of her family members and used currency as the method of payment. She even used the method of payment to get better pricing, ha!

Through the process of many subpoenas and dispositions we obtained evidence of most all of her spending. We had proof beyond a reasonable doubt. This time her attorney begged for a plea bargain which included her resignation from office and payment of a hefty restitution, but avoided jail time.

The County Commissioners were happy, they just wanted her out of office. In a couple of years, they were able to lower the millage rate because the new Tax Commissioner was operating an efficient, effective and compliant operation.

So one might ask, how could something like this happen? Simply put, a lack of oversight and verification of trust. So how should every organization do that? Still stay tuned, there will have to be a Part III!