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NGSA Drops Charges Against Canadian Woman in Fraud Case

May 24, 1999
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NGSA Drops Charges Against Canadian Woman in Fraud Case

The Natural Gas Supply Association (NGSA) in a complete about-face last week withdrew the civil fraud charges against a former Canadian Embassy aide less than a month after bringing them. The reason given for the action was to encourage negotiations between the two sides, but some took it as a sign that the charges may have been weak.

Attorneys for Margaret Elizabeth Martin and the NGSA currently are said to be negotiating and anticipate an "equitable resolution" of 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. However, if there's no resolution, civil charges against her could be re-filed in either the United States or Canada, sources indicated.

But one unnamed source said NGSA's sudden withdrawal of the fraud charges suggested, at least to him, it "didn't have cause for the complaint" against Martin, who now works for TransCanada PipeLines Ltd. in Ottawa. "The fact that they brought the charges less than one month ago and then quickly dropped them means the evidence [against Martin] was shaky. [It] has the appearance of being done almost willy-nilly." He was concerned the charges, which he viewed as a "public embarrassment" to NGSA, could open up the association to a defamation of character action.

Martin, who was an "economics counselor" at the embassy in Washington between 1990-1991, allegedly found out about Bush's fraud activities while living with him 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 summer home in Canada, jewelry and a mink coat, the civil lawsuit said. The NGSA action had charged Martin, who now is TransCanada's director of Canadian federal government relations, with five counts of fraud. She denied all charges.

As a general rule of thumb, most company or association officials who commit fraud act alone, said Gary Zeune, president of Columbus, OH-based Gary Zeune &amp 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." Normally, it's jilted "paramours" and disgruntled co-workers who blow the cover on the illegal activities. This happens in about 80% of all frauds.

Since there's no third-party corroboration, trying to prove or disprove Martin's claim that she didn't participate in the fraud scheme would be tough but not impossible, Zeune said. "If they both stand their ground, it will come down to 'he said, she said.' My guess is [then] they'll probably play one off against the other....." If she should argue she wasn't aware that Bush bought the items for her using stolen money, Zeune said forensic accountants and attorneys might be able to establish a pattern of Bush's spending habits to either support her position or disprove it. If "before a certain date [when Martin allegedly uncovered Bush's fraud] he was spending $2,000 or $5,000 a month on her then all of a sudden he starts to buy her lots of stuff, well there had to be a reason. The jury can draw its own conclusion."

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 in it. "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." 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."

It's 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 the 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.

Fraud Costs U.S. $400 Billion/Year

Also, the amount of NGSA money stolen-about $3 million-was actually "fairly sizable" for a non-profit association, according to Zeune, but comparatively 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, which is "probably understated" since it doesn't include fraud that's still undetected. "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."

He has one big question about the NGSA fraud. "What work product did [Bush] show the board members and his other staff to justify these payments" of $3 million? "What did Bush do, have some student make up reports" that simulated consulting work?

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 participated in a $100 million fraud-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 alleged extramarital affairs throughout the years should have sounded a warning bell to NGSA. "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." Pointing out that people tend to have "consistent behavior," he asked "why would you think that if someone's cheating on their spouse, that they'd be true blue in their job?" The fact that NGSA knew little about Bush's home life-not even his home telephone number-wasn't "real normal behavior for someone who's running a major association." Other telltale signs are increased spending and "significant changes in behavior."

To commit fraud, there must 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 almost never happens.

A word of advice to other gas-related associations: "this isn't just an NGSA problem," said Zeune. He noted that half of the organizations that "crash and burn" each year do so as a result of employee theft and abuse. "Now is the perfect time" for gas trade groups to check their accounting and auditing controls, he noted, adding that he plans to speak to the Southern Gas Association (CFOs and controllers) in New Orleans in early June. Associations should ask themselves one question-"Do they want to find themselves on the front page of The Washington Post?"

To prevent a recurrence of this, he suggested that gas associations and companies conduct thorough background checks on employees that would have access to assets. Contacting, for example, KPMG Forensic Services, a major international accounting firm, or Kroll Associates in Atlanta, GA, to carry out the checks could save them a lot of money, plus their reputations. "People who steal," Zeune noted, "have a tendency to do it over and over again," causing them to leave a trail that can be traced.

Susan Parker

©Copyright 1999 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

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