Second Chance Homeless Shelter Case Study

Overview of Case

Second Chance Homeless Shelter is a local overnight shelter for adult men and women operating as a not-for-profit 501(c)(3) company. In April of 2011, the Director of the shelter, Allison Wright, discovered that the Administrative Assistant, Dean Brown, had forged her name on checks and used a purchase card to embezzle almost $12,000 from the shelter. Once the forensic investigation was completed, it was determined that Brown forged Wright's name on 26 checks he made out to himself and on three other checks made out to K-Mart and Staples to pay bills for personal purchases he had put on the shelter's credit card. In total, Brown embezzled $11,571 between June 2010 and April 2011

Phase I: Case Background

On Friday, April 15th, 2011, Allison Wright, the Director of Second Chance Homeless Shelter, opened the purchasing card (often used by organizations to simplify the purchase process at frequently-visited stores) bill and noticed that the bill had a higher balance than she expected. After reviewing the detailed statement, she noticed some unexpected purchases from K-Mart. She also saw that the purchases were charged to the card assigned to Dean Brown, the administrative assistant at Second Chance.

Allison and Dean had separate purchasing cards for the Second Chance account and each month two separate bills were received from the bank in one envelope, so it was easy to know what charges were made to each card. Allison and Dean used the cards to purchase office supplies, coffee, tea, sugar, towels, sheets, blankets, and other small items the shelter needed. Moreover, Allison did not remember sending Dean to K-Mart during the past several months.

Usually Allison reviewed the bills each month when she signed the checks for payment but occasionally she would sign the checks without reviewing the statement. With a cold feeling in her stomach, Allison went to the accounts payable file and pulled out the other purchase card statements. Sitting down behind the desk in her office, Allison started looking carefully at the purchase card statements from the past few months. She was relieved to see nothing else out of order in the statements.

Allison sat back and took a deep breath. Second Chance was a small homeless shelter with about 15 full- and part-time employees that took care of approximately 50 individuals each night. The shelter operated as a 50l(c)(3) not-for-profit and Allison had been the Director for the past eight years. She loved her job and she loved "her family": the employees and "residents" of the shelter. After a few minutes, Allison realized that she still had a problem with Dean for charges she found on the statement she opened earlier this morning, but he would be out of the center until the following Tuesday, so she had some time to think about what to say to him.

Allison relied on Dean to take care of the administration of the center. He had worked at Second Chance for eleven years. He sat at the front desk each day, greeting the "residents" as they came and went. He opened the mail, collected contributions, and prepared the bank deposit slips so Allison could make the bank deposits after work on Fridays. He kept the checkbook, although every check required Allison's signature. He recorded all of the financial transactions to the small-business general ledger system the shelter used, and prepared the monthly reports for Allison and the Shelter's Board of Directors. If he was not trustworthy ... Allison didn't even want to think about it. But she had to think about it. Allison got her key, unlocked the bottom drawer of Dean's desk, and removed the checkbook. Allison set the binder containing the checks for the shelter on Dean's desk and flipped it open.

Phase II: Discovery

Allison slowly turned the pages of the checkbook, carefully looking at the check stubs with Dean's handwriting on them. The shelter only used about 15 checks each month for regular expenses so she was surprised to see more than ten check stubs marked "void" just in the past few months. She made a list of the check numbers for the checks marked "void" and went to the file cabinet where the bank statements were filed.

Allison took the folder containing the bank statements to Dean's desk and pulled out the previous month's statement. Allison looked at the list of cleared checks on the bank statement, searching for the check number for the "void" checks. She froze when she saw one of the check numbers listed as "cleared" on the bank statement with the amount $300 beside it; she had a dreadful feeling this day was only going to get worse.

Over the course of the morning, Allison reviewed the check stubs for the past two years, listing every check number marked ''void." She took the list to the bank. She asked the bank manager if she could get copies of the front and back of the cleared checks on her list. The bank manager used the computer to find scanned copies of the front and back of every check on Allison's list. None of the checks were void; every check had "Dean Brown" as the payee and Allison's could tell her signature was forged. Allison took copies of the forged checks and left the bank with a heavy heart.

After sitting in her office and thinking about the situation for an hour, Allison realized she was "over her head," she was not trained to deal with embezzlement! After all, who knew how much more Dean had stolen and how? She called the local police department and made an appointment for a detective to meet with her on Monday.

On Monday, April 18th, 2011, Detective Jeff Etty arrived at Second Chance to talk with Allison. Allison explained to Detective Etty what occurred on the previous Friday, and she showed him the forged checks, check register and check stubs, bank statements, and the purchase card statement that started the whole thing. Detective Etty asked Allison to sign her name to five pieces of paper so he could compare her signature to the check copies. After comparing signatures, it was obvious to the detective that the checks were forged. Detective Etty agreed to investigate further.

At Detective Etty's request, Allison searched Dean's desk for bank reconciliations, she did not find any, although preparing bank reconciliations was one of Dean's responsibilities. Detective Etty asked Allison to access copies of the purchase card statements for the card assigned to Dean but, because she did not know the passwords to look up the statements online, she had to call the bank that issued the card and ask for statements to be faxed to the shelter. Once Detective Etty completed his examination of the documents, it was obvious that Dean had been using his purchasing card to make illegal purchases starting in June 2010.

Further, Dean had forged Allison's signatures on checks he wrote to himself since September 2010. After completing his investigation, Detective Etty could prove that Dean illegally purchased $736.43 of goods from K-Mart, $75.98 of goods from Staples, forged three checks to pay those bills, and forged another 26 checks addressed to himself totaling $10,758.15. In total, Dean had stolen almost $12,000 in less than a year - almost 4% of the gross receipts of the shelter during that time period!

On Wednesday, April 20, 2011, at 1:00 pm, Detective Etty conducted a taped, mirandized interview with Dean Brown at the police station. During this interview, Dean stated that "he was an artist and would like to pursue his hobby after he gets through this incident," and that "he is into photography."

Detective Etty told Dean that the interview was about the forged checks and asked him why he forged the checks. "Dean stated that he was scared. Dean stated that he did more than his share of work and covered for other people over there (Second Chance) all the time and there were certain things that popped up that I just didn't have the income for and I knew what I was doing was wrong." Dean also stated that "car repairs cropped up (tires at a local tire shop) and everyday expenses." Dean further stated that "he was feeling let down at work and knew what he was doing was wrong ... that after he was fired, he was embarrassed and has not shown his face in town ... that he did not even tell his fianc ... that he loved his job and loved working with the residents."

Dean admitted that he "made out about 10 to 15ish checks to himself and signed Allison Wright's name ... Dean was not certain on the total amount of checks that he made out to himself ... (and) that he started writing these checks about a year ago." He further admitted that "he started the illegal purchases from K-Mart and Staples and that it was stupid ... that he would pay the illegal purchases from K-Mart and Staples by writing Second Chance checks and forging Allison Wright's signatures to pay the invoices."

Dean admitted that "the food purchases and CDs, DVDs and other items purchased from K-Mart were purchased illegally ... (he) thought there were about one dozen illegal purchases from K-Mart and one dozen illegal purchases from Staples ... (he) would purchase ink cartridges from Staples ... (and) the purchases may have started about a year ago."

During the interview, Dean stated that "he was so sorry and regretful for what he did ...(he) stated that he was going to beg for mercy from God and who ever."

Phase III: Resolution

On Tuesday, April 26, 2011, Detective Etty met with the K-Mart Asset Protection Coordinator and received copies of register receipts for all of Dean Brown's illegal purchases and video evidence of Dean's two most recent purchases (on March 10, 2011 and March 15, 2011).

On Friday, April 29, 2011, Detective Etty received and served a search warrant for Dean Brown's bank records.

On May 6, 2011, Detective Etty requested and received an arrest warrant for Dean Brown. On August 16, 2011, Dean Brown was charged in the Court of Common Pleas, and on March 13, 2012, Dean Brown was sentenced by the Court of Common Pleas. Dean's sentence included:

Pay court costs, costs of prosecution, and other fees required by law;

Seven years supervised probation and payment of $30 per month in supervision fees;

Three years (served consecutively to #2 above) supervised probation and payment of $30 per month in supervision fees;

While on probation, he may not:

Violate state or federal law;

Consume alcoholic beverages, go into establishments that serve or sell alcohol;

Consume drugs or other controlled substances ( except with a valid prescription);

He must enroll in and successfully complete any and all treatment recommended as a result of a drug and alcohol assessment previously performed;

He must make restitution of $7,458.46 to Second Chance Homeless Shelter and$4,112.13 to the defrauded bank;

He must perform 100 hours of community service within the first year of his probation; and

He must write a letter of apology to Second Chance Homeless Shelter

Phase I: Case Background:

What clue led Allison to suspect possible fraud?

Assume the role of Allison just discovering the odd charges at K-Mart and Staples. After thinking over the duties carried out by Dean, where would you begin to look in order to confirm or alleviate your suspicions? What additional documents might be helpful?

When reviewing the checkbook, what might indicate stolen funds? Are there additional documents that might be helpful?

How could Allison ensure that Dean has not stolen deposits?

How can Allison evaluate Dean's use of his purchasing card? Are there additional documents that would be helpful?

Phase II: Discovery:

Identify the components of fraud from Cressey's Fraud Triangle found in this case?

Incentive/Pressure?

Opportunity?

Rationalization?

How did Second Chance Homeless Shelter provide the opportunity for Dean to steal from the organization?

What steps could Second Chance Homeless Shelter take to prevent future cases of embezzlement?

Phase III: Resolution:

Do you think the punishment fit the crime?

Beyond the loss of funds, what additional problems could Second Chance Homeless Shelter face because of Dean's fraud?