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

Attorneys for Margaret Elizabeth Martin and the NGSA currentlyare said to be negotiating and anticipate an “equitable resolution”of issues stemming from her alleged participation in a schemeengineered by the group’s ousted president, Nicholas J. Bush, todefraud the association of about $3 million. However, if there’s noresolution, civil charges against her could be re-filed in eitherthe United States or Canada, sources indicated.

But one unnamed source said NGSA’s sudden withdrawal of thefraud charges suggested, at least to him, it “didn’t have cause forthe complaint” against Martin, who now works for TransCanadaPipeLines Ltd. in Ottawa. “The fact that they brought the chargesless than one month ago and then quickly dropped them means theevidence [against Martin] was shaky. [It] has the appearance ofbeing done almost willy-nilly.” He was concerned the charges, whichhe viewed as a “public embarrassment” to NGSA, could open up theassociation to a defamation of character action.

Martin, who was an “economics counselor” at the embassy inWashington between 1990-1991, allegedly found out about Bush’sfraud activities while living with him after she left the embassy,but she agreed not to report his actions to authorities in exchangefor “certain purchases” made with the money he acquired from thefraud, according to amended court papers filed by NGSA in lateApril. The purchases included a $250,000 summer home in Canada,jewelry and a mink coat, the civil lawsuit said. The NGSA actionhad charged Martin, who now is TransCanada’s director of Canadianfederal government relations, with five counts of fraud. She deniedall charges.

As a general rule of thumb, most company or associationofficials who commit fraud act alone, said Gary Zeune, president ofColumbus, OH-based Gary Zeune &amp Associates, which providescourses on fraud detection and prevention for the FBI, the U.S.Attorney’s Office, certified public accountants and lawyers. “Thereason is because every time you add one more person to the scheme,the risk of being detected goes up exponentially.” Normally, it’sjilted “paramours” and disgruntled co-workers who blow the cover onthe illegal activities. This happens in about 80% of all frauds.

Since there’s no third-party corroboration, trying to prove ordisprove Martin’s claim that she didn’t participate in the fraudscheme would be tough but not impossible, Zeune said. “If they bothstand their ground, it will come down to ‘he said, she said.’ Myguess is [then] they’ll probably play one off against theother…..” If she should argue she wasn’t aware that Bush boughtthe items for her using stolen money, Zeune said forensicaccountants and attorneys might be able to establish a pattern ofBush’s spending habits to either support her position or disproveit. If “before a certain date [when Martin allegedly uncoveredBush’s fraud] he was spending $2,000 or $5,000 a month on her thenall of a sudden he starts to buy her lots of stuff, well there hadto be a reason. The jury can draw its own conclusion.”

Zeune said he’s preparing a new course titled “Fraud: The 10Scariest Cases You’ve Ever Seen,” and plans to include the NGSAfraud case in it. “It’s a very interesting case because it’s verytypical of non-profit associations and small companies whereeverybody trusts everybody. There’s never a hint of anything wrong,and then all of a sudden-and this kind of stuff happens all thetime-there’s a glitch in the fraud mechanism.” With Bush, “the 1099[tax form] got out to one of the two [consultants] he waspretending to pay, and then came a telephone call and the wholething started to unravel.”

It’s representative of fraud cases in other ways also, Zeunesaid. “It involved a high-level person where nobody questions theirauthority, there weren’t checks and balances in the organization,and they basically acted like the internal controls didn’t apply tothem.”

The NGSA case, however, failed to fit the typical fraud profilein at least one respect-the duration of the fraud, he noted. Zeunefound it hard to believe that Bush was able to carry out hisallegedly fraudulent activities for 12-13 years. “If Nick’s fraudreally did run 13 years…that’s extraordinarily long. Most peoplesimply 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 wassmart in the context that when he allegedly stole the money throughthese fake consulting contracts…..he had it treated as aconsulting expense, and that way when every year the books wereclosed…[the amount] he stole that year and put into expensewasn’t detected in that year’s audit…..” Those that have the”hardest time maintaining a fraud are the ones where they steal themoney and then turn around and try to bury it in some kind of assetaccount,” which carries forward each year.

Fraud Costs U.S. $400 Billion/Year

Also, the amount of NGSA money stolen-about $3 million-wasactually “fairly sizable” for a non-profit association, accordingto Zeune, but comparatively small in terms of the sizes ofcorporate fraud. He estimated that fraud/abuse cases rob the U.S.economy of about $400 billion each year, which is “probablyunderstated” since it doesn’t include fraud that’s stillundetected. “Fraud on average sucks about 6% of revenues out of theaverage American company. That’s about $9 per day per employee.”

It’s difficult to estimate how much of the $3 million may berecoverable, he noted. “It’s very, very rare that people save anyamount 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 productdid [Bush] show the board members and his other staff to justifythese payments” of $3 million? “What did Bush do, have some studentmake up reports” that simulated consulting work?

In the event Bush is found guilty of criminal charges or there’sa plea bargain, the length of jail time he could face would dependon a number of factors-is it his first offense, were multipleoffenses involved, is he going to make restitution, and was anyonehurt as a result of his actions, Zeune said. He noted WebsterHubbell, former U.S. associate attorney general, got 21 months forstealing nearly $400,000 from his law firm in Arkansas, whileanother man-who participated in a $100 million fraud-got 52 months.

If Bush didn’t report the $3 million to the Internal RevenueService, “which would be par for the course, he’s going to have taxfraud on his hands. If he mailed any of those [consulting] checksto 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 hadmoney transferred someplace by his bank, they might charge him withwire fraud,” according to Zeune. Charges involving alleged misuseof identities and social security numbers may be less likely.”Identity fraud is fairly new, and the case law isn’t completelysettled on that one yet.”

Reports of Bush’s alleged extramarital affairs throughout theyears should have sounded a warning bell to NGSA. “When somebody’shaving an affair, there’s a real high likelihood they can’t supportboth lifestyles on what they’re making,” Zeune said. This “doesn’tmean they’re committing fraud, but it’s one of the warning signs.”Pointing out that people tend to have “consistent behavior,” heasked “why would you think that if someone’s cheating on theirspouse, that they’d be true blue in their job?” The fact that NGSAknew little about Bush’s home life-not even his home telephonenumber-wasn’t “real normal behavior for someone who’s running amajor association.” Other telltale signs are increased spending and”significant changes in behavior.”

To commit fraud, there must be three factors present. Zeunecalls it the phenomenon of the “triangle of fraud.” The first is amonetary 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 avery low probability that they’ll get caught,” he said. And lastlyand most importantly, the person has to be able to rationalize thefraud activity with his/her own behavior. Usually “what you tellyourself is that I’m only borrowing the money and I’ll pay it backnext month,” which almost never happens.

A word of advice to other gas-related associations: “this isn’tjust an NGSA problem,” said Zeune. He noted that half of theorganizations that “crash and burn” each year do so as a result ofemployee theft and abuse. “Now is the perfect time” for gas tradegroups to check their accounting and auditing controls, he noted,adding that he plans to speak to the Southern Gas Association (CFOsand controllers) in New Orleans in early June. Associations shouldask themselves one question-“Do they want to find themselves on thefront page of The Washington Post?”

To prevent a recurrence of this, he suggested that gasassociations and companies conduct thorough background checks onemployees that would have access to assets. Contacting, forexample, KPMG Forensic Services, a major international accountingfirm, or Kroll Associates in Atlanta, GA, to carry out the checkscould save them a lot of money, plus their reputations. “People whosteal,” Zeune noted, “have a tendency to do it over and overagain,” causing them to leave a trail that can be traced.

Susan Parker

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