Fraud Friday:Cross-country road trip, Guns N’ Roses show and phantom dinner guests turn up in Cal State San Marcos audit

Auditors and fraud investigators are the (too often) unsung heroes of organizations. They take fragmentary, incomplete evidence and through painstaking hours of analysis and investigation, develop and report on a vast array of improper acts. Their reports, when acted upon, serve both a detective and preventive purpose against fraudulent activity.

Last week, the excellent professional audit staff at the California State University Office of the Chancellor released a comprehensive investigative report detailing what can only be called an egregious misuse of public funds. It was heartening to see that the report generated a significant amount of media attention. From the San Diego Union-Tribune:

A former Cal State San Marcos dean submitted dozens of fraudulent hospitality claims, filed duplicate expense reports and made up dinner guests to collect improper reimbursements, a long-awaited investigation released Thursday concludes.

On one day he attended an NFL game and watched a Guns ‘N Roses concert, calling it college business, the report said.

In total, Michael Schroder racked up at least $41,000 worth of unallowable expenses between July 2017 and June 2019, investigators at the California State University Chancellor’s Office said.

His dismissal by the university was announced late Wednesday.

“We investigated allegations that the dean of extended learning at California State University, San Marcos inappropriately used his expense account for personal meals and events, claimed business expenses for meals with individuals with whom he never met and spent excessively on international travel,” the report states.

“We substantiated all of the allegations.”

The 28-page investigative findings lay out a sweeping breach of Schroder’s fiduciary duty to safeguard and steward public funding. But the CSU report also limited its review to the former dean, who was not alone in spending university money on lavish meals, personal drivers and five-star resorts.

The San Diego Union-Tribune reported last year that former President Karen Haynes and several other senior administrators also stayed at foreign hotels costing as much as $760 per night, hired chauffeur-driven limousines and used school resources for expensive dinners and fine wines.

The Chancellor’s Office declined to answer questions Thursday about why spending by other Cal State San Marcos administrators was excluded from its eight-month investigation — or whether Chancellor Timothy White would seek to recover any of the allegedly misspent funds.

Cal State San Marcos spokeswoman Margaret Chantung said in a statement that the campus’ own investigation had included a review of one year’s worth of spending by Haynes and other administrators.

“The scope of the (Cal State San Marcos) internal review included all reimbursements from vice presidents and presidents during the 2018-19 fiscal year,” she wrote. “While we discovered instances of travel spending that fell outside CSU policy, we did not find any evidence of fraud.”

She also said school officials have not decided whether to try and recoup any funds from Schroder — or others — or whether the university would refer the case to criminal prosecutors.

“We will be reviewing all of our options,” she said.

Schroder has declined to respond to multiple requests for interviews about his travel expenses.

https://www.sandiegouniontribune.com/news/watchdog/story/2020-02-13/cross-country-road-trip-guns-n-roses-show-and-phantom-dinner-guests-courtesy-of-cal-state-san-marcos?fbclid=IwAR1PjI_rkPzVbYed0Cas-VLWgfGekncrV5IpbAC-RDgsdcWKQ24ZJCDj7a0

Link to investigative Report: https://www2.calstate.edu/csu-system/transparency-accountability/audit-reports/Documents/special-investigation/2019/19203SpecialInvestigationSanMarcos.pdf?fbclid=IwAR1qYMTQWCBWrbSIwgIyOqJkbzR6QaKMwxNiAd-Nns035YO7orsljfCw_m0

Fraud Friday – To Steal & Protect: One of the Craziest Public Embezzlement Cases in History


Usually, embezzlement cases in public agencies are, if not boring, at the very least extremely predictable:

  • Municipality/Agency/Authority X finds out that Trusted Longtime Employee Y has been running a fake vendor scam for several years, and has stolen $Z.Z million dollars in order to satisfy their addiction to Indian casino slot machines and flowery Vera Bradley purses.
  • Everyone is “shocked. shocked I tell you” that Y is a con-artist. Why, she went to church every Sunday and fed the local stray cats, and she used to always bring in her famous turducken/donut sandwiches for the employee holiday potluck! A person such as this COULDN’T POSSIBLY be a (whispered) criminal. I mean, she’s not even a black guy for chrissake!
  • The Mayor/City Council/Board of Trustees of said public entity shits bricks in private, then professes to have known nothing in public, having been hoodwinked by a Master Criminal and kept in the dark by the career managers.
  • The media creates a temporary firestorm of publicity, whipping up the locals into a state of understandable rage. Then, as quickly as they appeared, the Nancy Grace’s of the world are off to the next Pretty White Girl Kidnapping or heartwarming animal story
  • Staff who aren’t fired or indicted are left to figure out what the hell happened and how to continue to do the business of the agency with little or no executive management, reduced budgets, and sky-high stress levels
  • The perp tearfully confesses to the judge at her sentencing hearing, insisting that “she just doesn’t know what got into her,” and blaming her financial transgressions on the death of her labradoodle ten years ago. The judge, while moved by this vacuous display of self-interested apologia, realizes he can’t just let this perp walk free, because he’s been handing out 25-to-life sentences to the poor and the unconnected like traffic tickets to the locals in Ferguson, Missouri, so he gives her eighteen months in County and a “strong admonishment” not to do it again.
  • Perp does her time quietly, and then, once paroled, seems to spend an awful lot of time in her flower garden, digging up something that appears to have been buried there.
  • Lather, rinse, repeat. The names, places, and amounts change, but it’s always some variation of that timeline.

Not in this story, though. This shit is NUTS. It’s got it all: Embezzlement, money laundering, perjury, wire fraud, bank fraud, insurance fraud, suicide, document fabrication, death threats, the entire county executive team getting indicted by a grand jusry, and so much more. Seems like sleepy little Front Royal, Virginia was more less like Mayberry (per the story), and more like Twin Peaks. From the WaPo:

FRONT ROYAL, Va. — Before the $21 million allegedly went missing, before the sheriff put his gun in his mouth and fired, before Tuesday’s announcement that the entire top tier of the Warren County government had been indicted, there was the dream.

It was a dream of renewal for this town 70 miles from Washington, which fell on hard times after a rayon manufacturing plant closed in 1989, leaving 1,300 people jobless and 440 acres full of toxic waste… 

Twenty-five years later, with the land cleaned up and Front Royal increasingly attractive to tourists and former city dwellers, officials announced plans for a data center and retail complex that would bring 600 jobs and act as a catalyst for other projects.

The deal was brokered by Jennifer McDonald, a longtime Front Royal resident who directed the Warren County economic development authority. Washington-area developer Truc “Curt” Tran pledged to finance it with $40 million from wealthy immigrant investors and a $140 million federal contract his technology company had secured. As an added bonus, Tran would fund a police training academy overseen by longtime Sheriff Daniel T. McEathron.

But those were lies, documents in Warren County Circuit Court allege.

Tran never had the money to build the data center project on the 30 acres his company bought from McDonald’s agency for $1, a civil lawsuit alleges. And the training academy was one of several hoaxes that, prosecutors and civil lawsuits claim, allowed Tran, McDonald, McEathron and others to siphon away millions in public funds, which they allegedly used to buy properties, pay bills and gambling debts, and enrich relatives and friends.

Now McEathron is dead, Tran is being sued by the economic development authority and there are state and federal investigations underway. McDonald faces 28 state counts of embezzlement, money laundering and obtaining money through false pretenses. She has denied the allegations and did not return interview requests, while Tran declined to comment through his attorney.

The claims against them, industry groups say,reflect the perils of weak oversight in economic development agencies — quasi-public entities that oversee large, complicated transactions, and whose boards often lack the financial savvy and investor scrutiny that protect their corporate counterparts.In Montgomery County, Md., an economic development official pleaded guilty this year to embezzling $6.7 million. The head of economic development in St. Louis pleaded guilty to steering lucrative contracts to the county executive’s political donors. In New Jersey, a grand jury is investigating how $500 million in tax incentives went to firms that, in part, allegedly lied on their applications.

“The lessons here are that there’s a need for better financial accountability,” said Jeff Finkle, head of the nonprofit International Economic Development Council. “People beyond one person who is managing a project where the temptation may be too great.”

On Tuesday, the Virginia State Police announced that 14 current and former local officials — including all five county supervisors — were charged with misdemeanor misfeasance and nonfeasance “based on the individuals’ knowledge of and inaction [regarding] the EDA’s mismanagement of funds.”

Read the full, insane story here

Here’s another account from the Northern Virginia Daily, a local newspaper that’s done a lot of investigative work on the story as well.

Then there’s the Mad Mother, a Facebook page that has become a repository of news about the case, run by a Front Royal local who is, well, mad as Hell. Apparently, there’s been a proverbial GOBN (Good Ole’ Boy Network) in picturesque Warren County for many decades. I can’t say the info posted on her site is verified journalism, but it sure makes for interesting reading…

At the end of it all, one can only reach the same conclusions that are always there in these cases: Where was the oversight? The internal controls? Why wasn’t this caught sooner? What will it take for people to learn that when the opportunity for fraud exists, there WILL be (not MAY be) people who steal. As the anonymous quote states: “The lesson will be repeated until it is learned.”

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