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Expert Says Fraud is Usually a One-Man Job

Expert Says Fraud is Usually a One-Man Job

The Natural Gas Supply Association (NGSA) has dropped the civil fraud charges against a former Canadian Embassy aide pending the outcome of negotiations between her and her attorney and the producer group.

Attorneys for Margaret Elizabeth Martin and the NGSA currently are negotiating and anticipate an "equitable resolution" of the issues stemming from her alleged participation in a scheme engineered by the group's ousted president, Nicholas J. Bush, to defraud the association of about $3 million, according to sources. However, if there's no resolution, civil charges against her could be refiled in either the United States or Canada, they said.

Martin, who was an "economics counselor" at the embassy in Washington between 1990-1991, allegedly uncovered Bush's fraud activities while living with him for a short time after she left the embassy, but she agreed not to report his actions to authorities in exchange for "certain purchases" made with the money he acquired from the fraud, according to amended court papers filed by NGSA in late April. The purchases included a $250,000 home in Canada, jewelry and a mink coat, the civil lawsuit said. The NGSA action had charged Martin, who now is director of Canadian federal government relations for TransCanada Pipelines Ltd. in Ottawa, with five counts of fraud. She denied all charges.

Most company or association officials who commit fraud act alone, said Gary Zeune, president of Columbus, OH-based Gary Zeune & Associates, which provides courses on fraud detection and prevention for the FBI, the U.S. Attorney's Office, certified public accountants and lawyers. "The reason is because every time you add one more person to the scheme, the risk of being detected goes up exponentially." He noted that jilted "paramours" and disgruntled co-workers usually are the ones that report the illegal activities to authorities.

Zeune said he's preparing a new course titled "Fraud: The 10 Scariest Cases You've Ever Seen," and plans to include the NGSA fraud case among them. "It's a very interesting case because it's very typical of non-profit associations and small companies where everybody trusts everybody. There's never a hint of anything wrong, and then all of a sudden-and this kind of stuff happens all the time-there's a glitch in the fraud mechanism." As with Bush, "the 1099 [tax form] got out to one of the two [consultants] he was pretending to pay, and then came a telephone call and the whole thing started to unravel. That happens on a regular basis."

It was representative of fraud cases in other ways also, Zeune said. "It involved a high-level person where nobody questions their authority, there weren't checks and balances in the organization, and they basically acted like the internal controls didn't apply to them."

The NGSA case, however, failed to fit the typical fraud profile in at least one respect-the duration of the fraud, he noted. Zeune found it hard to believe that Bush was able to carry out his allegedly fraudulent activities for 12-13 years. "If Nick's fraud really did run 13 years...that's extraordinarily long. Most people simply cannot maintain their composure under that kind of stress. Most of the frauds run two to three years."

Bush probably was able to continue for so long because of the "smart" way in which he carried out his scheme, he said. "Nick was smart in the context that when he allegedly stole the money through these fake consulting contracts...he had it treated as a consulting expense, and that way when every year the books were closed...[the amount] he stole that year and put into expense wasn't detected in that year's audit..." Those that have the "hardest time maintaining a fraud are the ones where they steal the money and then turn around and try to bury it in some kind of asset account," which carries forward each year.

Also, the amount of NGSA money stolen - $3 million plus-was actually "fairly sizable" for an association, according to Zeune, but small in terms of the sizes of corporate fraud. He estimated that fraud/abuse cases rob the U.S. economy of about $400 billion each year. "Fraud on average sucks about 6% of revenues out of the average American company. That's about $9 per day per employee."

It's difficult to estimate how much of the $3 million may be recoverable, he noted. "It's very, very rare that people save any amount of it. Now they might spend it on things like cars, vacations and a home," which are "assets that have some value."

In the event Bush is found guilty of criminal charges or there's a plea bargain, the length of jail time he could face would depend on a number of factors-is it his first offense, were multiple offenses involved, is he going to make restitution, and was anyone hurt as a result of his actions, Zeune said. He noted Webster Hubbell, former U.S. associate attorney general, got 21 months for stealing nearly $400,000 from his law firm in Arkansas, while another man-who helped to bilk his company out of $100 million-got 52 months.

If Bush didn't report the $3 million to the Internal Revenue Service, "which would be par for the course, he's going to have tax fraud on his hands. If he mailed any of those [consulting] checks to any other address, he'll probably be charged with mail fraud. And if he took the checks and put them in the bank and then had money transferred someplace by his bank, they might charge him with wire fraud," according to Zeune. Charges involving alleged misuse of identities and social security numbers may be less likely. "Identity fraud is fairly new, and the case law isn't completely settled on that one yet."

Reports of Bush's involvement in extramarital affairs throughout the years should have sounded a warning bell to NGSA. "It was fairly well known, I understand, that he was having an affair. When somebody's having an affair, there's a real high likelihood they can't support both lifestyles on what they're making," Zeune said. This "doesn't mean they're committing fraud, but it's one of the warning signs." The fact that NGSA knew little about Bush's home life-not even his home phone number-wasn't "real normal behavior for someone who's running a major association." Other telltale signs would be increased spending and "significant changes in behavior."

To commit fraud, there has to be three factors present. Zeune calls it the phenomenon of the "triangle of fraud." The first is a monetary need. "That is like the driver of the behavior." Secondly, there has to be an opportunity to commit the fraud. "[T]he person, who's going to do the dirty deed, has the perception that there's a very low probability that they'll get caught," he said. And lastly and most importantly, the person has to be able to rationalize the fraud activity with his/her own behavior. Usually "what you tell yourself is that I'm only borrowing the money, and I'll pay it back next month," which never happens.

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