A former senior executive at an information technology services firm, Mark Angarola, was sentenced in the Southern District of New York to 38 months in prison for an embezzlement scheme totaling $8.3 million and a tax evasion scheme totaling $668,000.

As a part of the business and management, Angarola completed, submitted, or otherwise caused to submit fraudulent invoices and expenses from about May 2010 to February 2019, by hiring family and friends in no show positions and billing personal expenses as business expenses. The scheme resulted in $8 million in losses to his employer and a client.

He also failed to report income from the scheme, and for two years, he failed to file federal tax returns.

Source: https://www.justice.gov

Commentary

In the above matter, a long-serving executive bypassed ineffective financial controls and supervision to execute multi-million-dollar embezzlement for close to a decade. 

To prevent this type of conduct, organizations must tighten governance around high authority functions and billing from third parties.

Below are some best practice tips:

• Approval, payment, and reconciliation of all invoices by a vendor and reimbursement of expenses are kept separate.
• Mandate independent review of high-risk vendor relationships (e.g. with an internal executive that controls scope, rates, and approvals).
• Adopt analytics in expense, travel, and vendor payment monitoring practices and establish processes to flag anomalies such as repetitive billing, lifestyle type charges, or concentration with related parties.
• Require yearly conflict of interest disclosure and related party screening to identify family, friends, or contractors' personnel (including employees and vendors).
• Rotate approvers regularly or require multi-approval for larger or extraordinary payments, including through senior leaders.
• Make sure all compensation and incentive arrangements are recorded and reported to the tax and payroll functions.

The final takeaway is that the risk of long-term embezzlement is greatest when trustworthy insiders maintain control over their vendor relationships and their approvals without needing to have outside oversight. Require strong separation of responsibilities and have analytic "checks and balances" in place.