It is not so much a question of “how,” or even “why” a woman by the name of Fuataina Afutiti stole nearly $2 million from the Veterans Health Administration Credit Union in Detroit, but by what measure did so many look the other way? When it comes to credit union fraud it’s critical that the board accept their fiduciary responsibility to the credit union members to safeguard their
Fraud Background Design. Criminal Offence Word Cloud Concept.
assets.
The Michigan Attorney General has sentenced her anywhere from 2-1/2 years to 20 years for the theft. He called her crimes despicable, and they were, but as president and chief executive of the credit union did no one suspect she was stealing them blind? Did the board have no interest in paying careful attention to the actions of their CEO? Credit union fraud is serious and the repercussions can extend beyond their president and chief executive.
Allegedly, the woman gambled away hundreds of thousands of dollars. She bought a luxury car and a motor home and treated herself to lavish vacations. The embezzlement took place over four years, 2012 to 2016. Over a four year period it apparently did not occur to anyone that the president of a credit union simply does not make enough money to live the lifestyle she was living. Could this credit union fraud have been caught sooner by observant employees or board members?
Though the AG’s office pulled at heartstrings to point out how she was stealing money from veterans, I am much more concerned by how easily and unethically she got away with her crime. It took regulators quite some time in conducting audits of the cash shortfalls and financial misdeeds.
Meanwhile, the former CEO leased or bought six vehicles during the four year embezzlement, including a 2013 Mercedes-Benz. The motor home was worth about $100,000, the vacations were lavish and still, no one suspected a thing.
Credit Union Fraud: No Checks and Balances?
At times like these, when a scandal is blown wide open, it is natural that many people, especially the 1,3000 veterans whose money was deposited in the credit union, would want to “tie the woman to the stake!” I can well understand their anger. However, there is enough culpability to go around. It is said that she was very anxious to cooperate with the authorities’ to reduce her sentence. It often works that way.
She could not have been the only employee. During the four-year period, did no one wonder what had happened to the $2million? Did the board ask no questions or did they even observe her lifestyle?
What is most bothersome for me is that there we have a situation where there were literally no checks and balances. She apparently liked to gamble. On Fridays did she walk into the vault, grab a few stacks of bills, and drive herself to the casino in one of her luxury cars and basically throw the money away? Then on Mondays did she return the winnings? Of course, if there were no winnings how sis she cover it all up? Apparently, the cover-up was easy because no one was ever looking! Want to get away with credit union fraud, find one that isn’t looking at senior management.
That Fuataina Afutiti is unethical is a given. That the credit union did not have ethics training is much more of a mystery. That an absence of checks and balances were the norm, talks to a deceitful employee who saw an opportunity to cheat the organization because essentially “no one cared.”
Mandatory Training
I have long been an advocate for financial institutions to have mandatory and on-going ethical training. Such training creates an awareness and at least helps to raise questions. And this training must be more than just an HR person going over the rules. Everyone knows the rules. The question that few are willing to ask is – why are good people willing to break the rules?
When Ms. Afutiti showed up once or twice a year with a new car, when she took expensive vacations or drove around town in a motor home, no one bothered to wonder because it must have seemed as though no one cared.
After ethical training, employees care more and are more alert to inconsistencies like cash irregularities and fraud. While Fuataina Afutiti is a crook, by not training employees to be ethical, the credit union and those associated with it, were somewhat complicit.
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Weigh in on this one: the Michigan case of charter school management company head Steven Ingersoll, who’s now serving a 41 month sentence in a federal prison camp for tax evasion and conspiracy to evade taxes.
While Ingersoll was convicted relating to his activities at the Bay City Academy, a Michigan charter school he founded and still owns, his fraudulent conversion of nearly $5.0 million from the Grand Traverse Academy has never been investigated.
And here’s the thing: Ingersoll admitted under oath during his sentencing hearing that he’d taken the money through a prepaid expense/accounts receivable financial statement manipulation scheme.
At the start of each fiscal year, (beginning July 1, 2007 and continuing for six years through the fiscal year ending June 30, 2013), Grand Traverse Academy (GTA) manager Steven Ingersoll withdrew his entire annual Smart Schools Management, Inc. fee from the Traverse City, Michigan charter school’s bank account before it had been earned — and before he was contractually entitled to receive it.
Although ostensibly based on a percentage of the GTA board’s approved preliminary budget figures, Ingersoll’s management fee was necessarily “adjusted downward” after actual budgets were calculated at the end of each year. Ingersoll booked the overpayment on the GTA’s balance sheet as either “accounts receivable” or a “prepaid expense”, claiming them as “assets”, thereby concealing the school’s shaky financial condition.
The scheme was apparently supported by then board president Mark Noss, who described it in a September 17, 2014 Interlochen Public Radio interview: “There were times when the resources were just not there. So Smart Schools basically pledged or rebated that money back, saying ‘at some point in time we will repay what we’re calling a prepaid expense.’”
However, Ingersoll never really repaid the difference between the amount he’d advanced himself (“what we’re calling a prepaid expense”) and the actual management fee he should have received.
So how did the receivable grow from $538,864 on June 30, 2007 to $3,551,328 on June 30, 2012 if Ingersoll, as he’d claimed in multiple financial documents to the GTA board, booked each year’s fee overpayment as a receivable and paid it off at the beginning of the next fiscal year?
Simple: after Ingersoll had paid the previous year’s receivable balance using Michigan state aid money provided to the Grand Traverse Academy, he then transferred that money back from the Academy’s bank account to one of his Smart Schools accounts, and created a new, and even larger, receivable balance. (Ingersoll finally admitted the multi-year scheme on December 9, 2015 while testifying during his still ongoing sentencing hearing).
Representatives of the GTA board, including its then-president Noss, met with attorneys from the Thrun Law Firm and Steven Ingersoll on May 20, 2013. During the meeting, Ingersoll admitted owing the charter school at least $3.5 million but asked to have the debt classified as a “loan”.
According to the May 30, 2013 Thrun Law Firm legal recommendation to Noss and the GTA board, the issue before the board related “to funds withdrawn from the Academy’s general fund by Steven Ingersoll and/or representatives of SSM, which exceed the amount appropriated or authorized by the Board to be paid to SSM for either management fees or the reimbursement of Academy expenses.”
The letter estimated Ingersoll’s debt to the Traverse City charter school at $3,548,319 (based on information provided by Ingersoll’s handpicked CPA, Tony Henning). As Henning had relied solely on “financial reports and representations of Steve Ingersoll” to determine the amount, Thrun repeatedly urged the GTA board to “independently verify the full sum due” instead of merely accepting Henning’s number.
Representing the interests of the GTA and its board, not Steven Ingersoll and Smart Schools Management, Thrun affirmed in its May 30, 2013 letter that “Steven Ingersoll openly admitted, when asked by us during the May 20th meeting, that a conflict exists between his personal interests and the interests of the Academy.”
However, the GTA board ignored Thrun’s recommendation to verify Ingersoll’s numbers, instead using CPA Henning’s exact $3,548,319 amount in its June 13, 2013 “demand letter” to Steven Ingersoll.
On June 30, 2013, the GTA board and Ingersoll agreed on a “repayment plan”, revealing the details in the Academy’s 2013 financial statement. The agreement allowed Ingersoll to “work off” his balance by foregoing management fee payments over the remaining three fiscal years of his management contract.
However, a November 25, 2013 letter from Doug Bishop, the GTA board’s former attorney, to Michigan Department of Education auditor John Brooks revealed one stunning exception:
Although the board of directors, headed at that time by longtime Ingersoll business associate Mark Noss, publicly revealed in the Academy’s 2013 financial statement its decision to credit Ingersoll’s future management fees against his $2.38 million dollar “prepaid expense” balance until it was reduced to zero, the Board still authorized a cash payment of “approximately $332,000 in pre-obligated, annual debt service of SSM with regard to GTA has agreed to pay to SSM.”
After publicly revealing in its 2013 financial, and sticking to the story that Ingersoll would be “working off” his prepaid balance by foregoing any future management fee payments, the Grand Traverse Academy board paid Ingersoll $332,000 so he could have the cash flow necessary to make payments on an unspecified Smart Schools Management debt.
GTA board president Mark Noss later oversaw an early morning meeting on March 19, 2014 where the board voted unanimously to officially “withdraw from the management contract with Smart Schools Management, Inc.”
Minutes later, the board accepted the resignation of “Mark Noss as the President of the Board.” Although Noss tendered his resignation during this meeting, the resignation was not effective immediately.
GTA records revealed Noss continued to serve in a dual role as a board member until its May 2014 meeting, nearly two months after signing a multi-year, multi-million dollar management contract.
Steven Ingersoll was indicted on April 9, 2014.
Ingersoll was charged with three counts of wire fraud, two counts of tax evasion, one count of conspiracy to defraud the government, and one count of attempted conspiracy. (Four co-defendants, including Ingersoll’s wife Deborah, were also charged on various fraud and conspiracy counts).
An April 24, 2014 superseding indictment further charged Steven Ingersoll with tax evasion regarding his attempt to “disguise the money allegedly received from Grand Traverse Academy” —which was also named by the government as the motive for the bank fraud conspiracy and tax evasion conspiracy.
Steven Ingersoll was convicted of three counts of fraud and tax evasion on March 10, 2015.
(Ingersoll was sentenced to 41 months on December 15, 2016.)
On March 15, 2016, an accountant formerly employed by Mark Noss at Full Spectrum Management revealed to the GTA board and the charter school’s authorizer, Lake Superior State University, that Noss had been making $12,500 monthly payments (and in some months, much more) to Ingersoll since April 2014, shortly after Noss assumed control of the GTA.
Using information provided by the whistleblowing accountant, (who resigned shortly after making his revelations public), federal prosecutors were able to substantiate that between April 8, 2014 and March 1, 2016, Steven Ingersoll received a total of $627, 624.14 from Full Spectrum Management, the educational services provider owned by Mark Noss and holder of the management contract for the Grand Traverse Academy or Grand Traverse Academy itself. All of that money went into accounts owned by Steven Ingersoll and his solely owned entities.
An excerpt from the April 29, 2016 document: “In assessing the credibility of Habermehl as a witness and Noss as an affiant in this matter, the court must consider the relationships they have with Ingersoll and how their financial and personal relationships with Ingersoll have influenced the representations that Habermehl and Noss have made to the court.
The evidence discussed above casts doubt on the credibility of Ingersoll, Noss and Habermehl.”