Lifestyles of the rich and famous can mean fraud

The case of Harriette Walters is a monument to fraud and lifestyle issues.

Walters was an $80,000-a-year former manager of the District of Columbia Office of Tax and Revenue who was arrested Nov. 7, 2007, on charges involving the embezzlement of nearly $50 million.

Five people have pleaded guilty in the case and Walters is awaiting trial.  Walters is accused of issuing fraudulent refund checks for overpaid property taxes.  The refund checks were generally made payable to two payees, a legitimate property taxpayer and persons or sham companies acting in concert with Walters. 

The fraudulent checks averaged about $388,000.  Approximately $40 million of the $50 million of embezzled funds is still unaccounted for.  The scheme has been described as operating from 2000 to 2007, but some reports have speculated that it went back to 1990. 

I have reviewed many press reports, Department of Justice press releases and court filings concerning the case, and I believe Walters’ lifestyle screamed for attention.  Here’s why.

First, I went to the textbook I use in my Fraud Investigation and Analysis class.  The book describes the suspicious lifestyle issue very well.  The author, W. Steve Albrecht, writes, “Most people who commit fraud are under financial pressure.  Sometimes the pressures are real; sometimes they represent mere greed.  Once perpetrators meet their financial needs, they usually continue to steal, using the embezzled funds to improve their lifestyles.  Often they buy new cars.

“They sometimes buy other expensive toys, take vacations, and remodel their homes or move into more expensive houses, buy expensive jewelry or clothes, or just start spending more money on food and other day-to-day living expenses.  As they become more and more confident in their fraud schemes, they steal and spend increasingly larger amounts.”

Albrecht’s comments read like a screenplay for the Walters case.  Somehow, she was able to afford a Mercedes convertible on her $80,000-a-year salary.  She also spent $1.4 million at Neiman Marcus from 2000 to 2007, according to a FBI affidavit.  This is an average of $175,000 a year over eight years.

And Walters didn’t limit her shopping to Neiman Marcus.  According to media reports, she also frequented designer Louis Vuitton’s store in Tysons Corner. This is apparently where Walters met Marilyn Yoon.

Yoon pleaded guilty to fraud on May 19 in connection with the tax refund embezzlement scheme.  In addition to helping Walters spend money at Tysons Corner, Yoon converted a fraudulent tax refund check for $275,000 by depositing the check in her husband’s business bank account.   Yoon was allowed to keep $150,000 of the tax refund check and she used it to remodel her home and make a loan.  The balance of $125,000 was used to purchase a cashier’s check and sent to an unnamed business.

According to media reports Walters routinely bought breakfast for co-workers at the Office of Tax and Revenue.  Additional reports about Walters include her making loans to her supervisors and taking trips to Las Vegas and Atlantic City.

I don’t know if Walters has a gambling problem, but I do know gambling is a very addictive behavior and nothing can make money disappear faster.

Walters’ lavish lifestyle on her salary was a sea of red flags. But what do you do if you have no proof of fraud? 

In this case, a routine review or audit of Walters’ work would have noted her issuing checks for refunds that were returned to her for delivery to the taxpayer.  Checks should never be returned to the person requesting the checks.  Checks should be mailed, not delivered. 

Recently I completed an investigation of a mid-level manager suspected of embezzlement.  The manager drove a Mercedes and hand-delivered checks to outside vendors that were sham companies. Sound familiar?

Management needs to note employee lifestyles that don’t seem to fit the employees’ means.  Management needs to be prepared to implement procedures to review the work of employees with suspicious lifestyles and access to cash, checks or other company assets.  These practices can protect company assets and employees from temptation and suspicion.

Dan Dreibelbis is an adjunct instructor with the forensic program at Stevenson University, the new name of Villa Julie College.  Dan can be reached at dan.dreibelbis@verizon.net.