Forensic Accounting Case Study

Federal prosecutor Timothy G. Lynch would lie awake at night and fret: Is this the night Harriette Walters flees?

It was 2007, and Lynch and a small team of prosecutors and FBI agents had been toiling in secret for weeks, trying to unwind what would turn out to be a $48.1 million embezzlement, the largest in the D.C. government's history. Investigators were concerned that Walters might hear about the investigation and abscond with millions of dollars.

Authorities were also facing pressure to arrest Walters because she was still stealing. But prosecutors and agents had no idea where all the money had gone, and they desperately wanted to find it. There were also questions about who else might be involved. If they made arrests too early, other conspirators could flee, perhaps with the missing loot.

In the end, authorities say they found the proper balance. They kept working until sweeping across the area early one November morning to make arrests. Eleven people eventually pleaded guilty to federal charges, and all were sentenced to prison terms. Walters, the key player in the scam, was the last to be sentenced. She was given a 17 1/2 -year prison term in late June.

For the first time, federal prosecutors and FBI agents have discussed the investigation in depth, saying it was far more dramatic and tension-filled than court papers indicated. The case started with a lucky tip from a longtime bank security officer and quickly became a frenzied race to gather as much evidence as possible without tipping off suspects.

Investigators visited D.C. government offices late at night to pull files. They strung along a key conspirator to give themselves more time to wrap up the case. Eventually, an FBI agent got Walters to confess in her own handwriting. And another agent befriended the former tax manager, easing her through a series of interviews that proved crucial to understanding the scheme's scope.

"We were on the hunt, but at the same time, you don't want it to end in her evading prosecution," Lynch said, describing the first few months of the case. "It was both an exciting and angst-ridden time."

In the end, Walters admitted that she exploited lax oversight in the city's tax office to issue more than 230 fraudulent property tax refund checks to friends and other conspirators starting in 1989. Between 2000 and 2007, her most prolific period, she issued 152 fraudulent refund checks worth $42 million. Much of the money has not been recovered, having evaporated in gambling trips and purchases of expensive clothes, jewelry, cars and furniture.

The investigation started in July 2007 when FBI agent Matthew Walsh got a call from a longtime security officer at SunTrust Bank. The officer wanted Walsh to know that a woman, Jayrece Turnbull, had deposited a suspicious $410,000 D.C. government check at a branch in a Bowie supermarket. The bank accepted the deposit but froze the account after employees grew concerned about Turnbull's actions and business.

She had been evasive with bank employees, the bank employee told Walsh, and she didn't have any of the proper documents to prove she ran the company that was entitled to the money.

"I just want to let you know this is going on," he told the agent.

A few weeks later, Walsh ran computer checks on Turnbull and found reports from another bank about suspicious checks. The agent then tracked Turnbull's transfers of the funds. The name Harriette Walters popped up. Another quick check showed that Walters was a D.C. government employee.

"Aha," the FBI agent thought. "This is where the money is coming from."

It didn't take Walsh long to learn that Walters was also Turnbull's aunt. Meanwhile, Turnbull kept asking the bank to release the hold on her account or give her the money back. The bank was feeling pressure to return the funds. The agent didn't want to spook Turnbull or allow her to take her money and vanish.

So he persuaded bank employees to string Turnbull along by demanding more information and delaying the resolution of her complaints.

As Walsh was working the case's Maryland angles, which turned out to be extensive, District-based federal prosecutors, their paralegal Diane Hayes and FBI agents were elbow-deep in boxes of dusty, sticky and moldy records from the D.C. tax office. Their task was to figure out how the scheme worked.

A review of the records showed that Walters created a package of materials designed to prove that a taxpayer was entitled to a property tax refund, cutting and pasting documents to get the money moving. After the tax refund was approved, she erased the name of the taxpayer and inserted the name of the company or person she wanted to receive the check.

Each day, as they dug deeper into the records, the scam grew. "It was one of those things that went from like $5 million one day to $10 million the next, and then up to $20 million," said Steven M. D'Antuono, a supervisory special agent in the bureau's Washington Field Office. "Holy cow, it just kept getting bigger and bigger."

By early November, agents and investigators were fanning across the D.C. area to arrest Walters and four others.

At Walters's Northwest Washington home, FBI agents confronted a bewildered and defiant suspect. At first, Walters told FBI agent Andrew Sekela that she knew nothing about the scam.

Sekela got in Walters's face. "We know you are lying to us," Sekela told her as he threw refund vouchers, containing her signature, on a coffee table.

Walters began to cry and was soon writing a rambling six-page confession. In it, she explained how she avoided raising suspicions for so many years. "I told a lie to all of my co-workers that I had a 'rich boyfriend who gave me money,' " Walters wrote. "They did not know this was a lie. I presented a front and kept up the front."

Over the next few months, Sekela and other agents interviewed more than 30 people who had received at least a few thousands dollars from Walters. To the FBI agent's amazement, all said they had believed Walters's stories of being a beneficiary of a rich father or boyfriend.

"Money talks to a lot of people," Sekela said.

With overwhelming evidence arrayed against her, Walters agreed to plead guilty and answer questions from authorities. At first, Walters didn't seem to trust the agents or prosecutors. But over time, she grew more talkative. And by the last session, Walters had convinced investigators that she was the only government employee involved in the thefts. Walters's information, in large part, prompted authorities to drop charges against one of her assistants.

"It's always extremely helpful to hear from the mastermind herself," said Assistant U.S. Attorney David S. Johnson.

Johnson and other officials attributed that change in attitude, in part, to an FBI agent who befriended Walters during lunch hours while the rest of the team went in search of food.

Over sandwiches, yogurt and fruit, FBI agent Julie Shields and Walters chatted about the Olympics and politics. They even discussed Walters's efforts to lose weight and how to make cottage cheese and apple pies in prison cells.

"Her demeanor toward Harriette was very comfortable, very matter-of-fact, nonjudgmental," said Steven Tabackman, Walters's attorney.

As for the money? Authorities said they think they have recovered about $10 million in cash and assets, but they acknowledge that they needlessly worried about Walters fleeing to live the high life in a country without an extradition treaty.

After digging through records and interviewing scores of people, including Walters, agents have concluded that it was simply spent. Walters gave massive amounts of money to co-workers and family members. She bought more than $1 million in jewelry from a single Annapolis store and spent at least $1.2 million at Neiman Marcus. When agents raided her house, they found 125 designer purses and wallets. Many still had the tags on them.

There were no foreign bank accounts. No secret stash of cash or diamonds was buried in her back yard. Walters spent so much so quickly, authorities said, that she needed overdraft protection on her main bank account.

It would have been a brief, and hard, life on the lam.

1.)Explain how the fraud triangle applies in this case with Harriette Walters?

2.)What pieces of evidence would investigators have utilized to support their claim that the accused intended to commit fraud? Why?

3.)What red flags may have been evident to others in the D.C tax office and to the investigators?

4.)If you were an investor in this case, who are the relevant parties that you would have wanted to interview?

5.)What interview techniques did the investigators try? What worked?

6.)What recommendations would you have made to the D.C Tax office in order to help prevent this type of fraud in the future?