Pair of Aces

March 2018 | Article

Do you know the warning signs of fraud?

Embezzlement can happen at any organization. There were several red flags during a real life $2.7 million embezzlement in Boston. How do you recognize red flags? How can you protect your organization? We’ve summarize the scheme and offered insight so that you know how to spot red flags.

Scheme Type: Embezzlement

Loss Amount: $2.7 million

Duration: October 2010 through April 2015

Red Flags: 75 unauthorized transactions each under $50,000

Industry: Financial institution and Nonprofit

Perpetrator’s Position: Senior Vice President

Scheme Synopsis:

Pam Ace, a senior vice president with a financial institution, used her position to authorize 75 transactions, each under $50,000, as “donations” to nonprofit organizations. The funds were misappropriated from a marketing budget managed by Pam Ace. Pam Ace and her husband/co-conspirator, Jonathan Ace, would contact these nonprofit organizations to request substantial refunds to ensure the financial institution would continue to fund the organizations. The organizations would then issues checks to Jonathan Ace or return the funds to an account accessible by the couple. The Aces used these embezzled funds to support their lifestyle and pay for personal expenses.

Tips to Prevent or Detect This Scheme from Occurring at Your Organization

Pam Ace authorized multiple transactions under $50,000. Typically, organizations have established dollar thresholds that require additional review/authority to disburse funds. One fraud detection analytic is to perform queries of transactions just below these thresholds for anomalies.

Another red flag in this case occurred when the nonprofits returned the embezzled funds to an account in which the couple had access to. The account was maintained at the same financial institution that employed Pam Ace. Financial institutions are supposed to have employee account reviews in place to identify anomalies such as unknown sources of deposits. We have observed the following situations in which these employee account reviews failed to detect red flags:

  • The person who was to complete the employee accounts did not have their own accounts reviewed by another employee.
  • Senior management personnel’s accounts were not subject to the employee account review process.
  • The person performing the employee account reviews lacked formal training and/or education to understand what they should be looking for when performing these reviews for anomalies.

Learn more about the details on these “Pair of Aces” and how they were “flushed out”.

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