The Dude Fraud Case

This scenario has been adapted from the book Fraud Examination 4th Edition.

In his own words, Daniel Jones was The Dude. With his waist-long dreadlocks, part-time rock

band, and well-paid job managing a companys online search directoryhe seemed to have it

all. Originally from Germany, Jones, now age 32, earned his doctorate and taught at the

University of Munich before coming to the United States, where he started his career in

computers. In 1996, Jones started working with the company as a director of operations for U.S.-

Speech Engineering Service and Retrieval Technologyworking on a new, closely guarded

search engine tied to the companys .net concept.

The company allows employees to order an unlimited amount of software and hardware, at no

cost, for business purposes. Between December 2001 and November 2002, Jones ordered or used

his assistant and other employees (including a high school intern) to order nearly 1,700 pieces of

software which had very low cost but were worth a lot on the street. He then resold them for

reduced pricesreaping millions. When items with a cost of goods sold of more than $1,000 are

ordered, an e-mail is sent to the employees direct supervisor, who must click on an Approve

button before the order is filled. In no individual order was the cost of goods more than 1,000

he made sure none of the orders required a supervisors approval. The loosely controlled internal

ordering system reflects the trust the company puts in its employees.

In June, FBI agents said they saw Jones exchanging a large box of software for cash in a

department store parking lot. The FBI contacted the companys security and began monitoring

Jones bank accounts. Previously, one account with his bank had an average balance of

$2,159. In a short time, however, the average balance ballooned to $129,775. Another account at

another bank showed irregular deposits totalling $500,000none of which appeared to be from

any legitimate income or other source.

Investigators also noted that Jones purchased a Ferrari F355 Berlinetta, a Jaguar XJ6, and traded

in lesser vehicles for a Hummer, a Mercedes 500SEL, and a Harley-Davidson motorcycle. He

also bought an $8,000 platinum diamond ring, a $2,230 wristwatch, and a $4,000 bracelet. You

figured that I like big boys toys by looking at some of my pictures, Jones wrote on his personal

Web page. I just cant resist. The Dudes Web page includes a camera for monitoring his cat

and photos of his yacht, cars, and other treasures. For a relatively low-level manager, it was an

impressive collection. But at his company, where teenage software engineers can earn more than

company directors, no one batted an eyelid.

A neighbour across the street from Jones said that he was clearly wealthy, but not flamboyant

with his money. He described Jones as an intelligent man who didnt flaunt his education, would

loan neighbours tools, and was always friendly. The neighbour was surprised to hear the

accusations against someone he called his friend. All he knew about Jones was that he was a

good neighbour who loved cars. He was very, very helpful. The few times I had problems with

my PC, hed come and help straighten them out, the neighbour said. They are just ideal

neighbours. I feel terrible for him and his wife." Jones and his wife lived in a modest 1960s split-level home.

In 2001, he joined the city's Rotary Club, "where he seemed more outgoing and personable than

the stereotype techie," said a local jeweller and immediate past president of the club. He seemed

like what I would expect a genius software developer to be."

In the scenario, Jones' employer has been putting more emphasis on controlling cost. With the slowing of overall technology spending, executives have ordered managers to closely monitor expenses and have given vice presidents greater responsibility for statements of financial positions. 1) What is the impact of these new measures on fraud prevention? 2) Does cost control measures create any additional positive or negative consequences? 3) In future fraud prevention measures, how will dealing with this situation impact the company. Would it lead to positive factors or negative factors?