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Why PEPs should include local officials…

I’m a fan of sometimes keeping to the letter of the regulation if it keeps operational costs down. And, then, a news item pops up that shows me the weakness of that argument:

The former Finance Director of Cherryville, NC just pled guilty to the embezzlement of over $435,000. An excerpt from the FBI news release:

According to the bill of information and the filed plea agreement, up until her retirement in December 2011, Alexander was employed by the city of Cherryville as its finance director and supervised the city’s Finance Department. In that capacity, Alexander oversaw the city’s accounting, financial reporting, and treasury divisions, as well as the city’s revenue collections and customer service departments. As the finance director, Alexander also had access to and was able to process payroll payments to Cherryville employees, direct payments for city expenses, issue checks on behalf of the city, remove cancelled checks from the city’s records, and make adjustments to Cherryville’s electronic accounting systems, court records indicate.

From about August 2005 through December 2011, Alexander embezzled at least $435,294 of Cherryville’s funds and used the money to pay personal expenses. Court documents show that Alexander made weekly payroll payments to herself that were more than 300 percent of her authorized net pay from the city. In total, Alexander embezzled approximately $309,594 from the city of Cherryville in this manner.

Court records also show that Alexander used city funds to pay for personal expenses, including shopping and travel expenses, that she charged on her personal American Express credit card by issuing checks from the city of Cherryville made out to American Express. According to filed documents, Alexander issued the city checks and forged on those checks the signature of another Cherryville employee who was the authorized signatory on the account. Then, to avoid detection, after the forged checks had cleared and were returned by the bank, Alexander would remove them from the city’s records, court documents show. Alexander issued and forged a total of 26 checks from the city of Cherryville totaling approximately $97,000 to pay off personal charges on her American Express card.

So, if your firm had considered this official a PEP, could you have caught this fraud earlier?

Perhaps I should retool my mantra about this: you should consider as PEPs people from your client base who are either government officials in the geographic area your firm serves that have some authority and or fiduciary responsibility, and their families and associates. So a small local bank might be on the lookout for local officials, while a regional might care about those folks and state officials (in addition to any foreign officials).

Link:

FBI Press Release

Categories: PEP Lists

eric9to5

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