Every once in a while, a person devises a fraud scheme so complex that it is virtually undetectable. Intricate planning
Every once in a while, a person devises a fraud scheme so complex that it is virtually undetectable. Intricate planning allows the person to cheat a company out of millions of dollars with little chance of getting caught. Jerry Harkanell is no such person.
Harkanell’s payroll scheme put only about $1,500 in his pocket before a supervisor detected his fraud, less than half a year after it began. Harkanell worked as an administrative assistant for a unit of a large San Antonio hospital. His duties consisted mostly of clerical tasks, including the submission of payroll information for the unit.
An exception report for the month of March listed some unusual activity on Harkanell’s time sheet. He had posted eight hours that resulted in overtime wages for a particular pay period. The pay period coincided with a time of low occupancy in Harkanell’s unit. During times of low occupancy, there is no need for anyone—especially an administrative assistant—to work overtime.
When his supervisor confronted Harkanell about the eight hours, he confessed. He said he posted the time because of ﬁnancial problems and threats from his wife to leave him. He immediately submitted his resignation, a hospital administrator-tor accepted it, and Jerry Harkanell became a former hospital employee.
The hospital administrator shared the speciﬁcs of this incident with Oscar Straine, director of internal auditing for the hospital and a certiﬁed fraud examiner. “Nobody leaves for just eight hours,” Straine said. “There must be a lot more there.”
When Straine delved into the records, he found exactly what he had suspected. Since October of the previous year, Harkanell had been overstating his hours. He had recorded hours that he had not actually worked; he had posted his hours to shifts for which pay was higher; he had reported vacation time as time worked, drawing not only additional pay but extra vacation time, too.
Unfortunately for Harkanell, his method of cheating his employer left a well-marked paper trail. In his administrative role, he collected and submitted the unit’s manually prepared time sheets to his supervisor. She signed the time sheets, made copies to retain for her records, and returned them to Harkanell for delivery to the payroll department. Harkanell then altered his original time sheet before he delivered the approved documents to the payroll department. Amazingly, he completed his time sheets in pencil, allowing him simply to erase the old numbers and make changes.
The audit staff compared the supervisor’s copies of time sheets with the time sheets on ﬁle in the payroll department. Discrepancies between the two stood out. The investigation lasted less than a month. The results revealed that during a twenty-six-week period, Jerry Harkanell defrauded the hospital of $1,570.
Interviews conducted with coworkers and supervisors revealed one detail that might have tipped Harkanell’s hand even earlier, had anyone recognized a suspicious act for what it was.
One Friday before payday when Harkanell had the day off, he showed up at the hospital anyway. This was more than a minor inconvenience since he didn’t own a car. But Harkanell took the bus to work just so he could personally get the unit’s time sheets approved and turned in to payroll. At the time, no one questioned why he didn’t simply ask someone to cover for him.
At the completion of the investigation, the hospital ﬁled a claim with the district attorney’s ofﬁce. Evidence consisted of copies of the approved time sheets, copies of the altered time sheets, and afﬁdavits from Harkanell’s supervisors.
An assistant district attorney in charge of the case called the hospital shortly after receiving the case. She had uncovered some interesting details about Harkanell’s past during a routine background check. A computer search revealed that he had a criminal history and that he was currently on parole. In fact, the assistant district attorney reported, Harkanell had previously been sentenced to life in prison for armed robbery.
The news that the hospital had unknowingly hired a convicted felon distressed Oscar Straine. He discovered that the hospital’s ability to conduct thorough background checks on prospective employees was restricted by money and access to records. The hospital routinely checked criminal records in Bexar County (where the hospital is located) and any counties where an applicant reported having a history. But cost and time prohibited the hospital from checking records in all 254 Texas counties, especially when hiring a low-salaried employee like Harkanell.
The complaint against Harkanell went to the grand jury quickly. Straine testiﬁed, the grand jury issued an indictment, and a warrant was issued for Harkanell’s arrest.
The sheriff’s department attempted to locate Harkanell several times, but with no success. He had moved and, not surprisingly, left no forwarding address. The DA’s ofﬁce notiﬁed the hospital that Harkanell had disappeared, and that it had no immediate plans to continue the search.
Harkanell remained at large for several months, but luck was on the hospital’s side—or, perhaps more accurately, stupidity was on Harkanell’s. Just as he had done with his time sheet fraud, he left a clue behind, this time concerning his whereabouts. This was no subtle hint, either. He might as well have mailed the hospital an invitation with a map.
The following January, Straine was talking to a woman in the human resources department who had worked on Jerry Harkanell’s original case. Straine called this woman to talk about his continuing concerns over the hospital’s inability to do a more thorough background check on prospective hires. During the conversation, the woman asked, “By the way, did you happen to see the paper a few weeks ago?” “I don’t know what you’re talking about,” he replied
Oh—well, Jerry Harkanell’s picture was on the front page of the business section of the Express.”
You have to be kidding.” But she wasn’t. Straine immediately searched online for a copy of the article. Within minutes, he’d found a story about a nonproﬁt organization that helps low-income families buy houses with low-interest loans and no down payment.
Right in the middle of the article was a picture, and right in the middle of that picture was Jerry Harkanell. He and his family were sitting on the front porch of the new home the nonproﬁt group had helped him purchase. The article detailed Harkanell’s story, commenting on how hard he had worked to get his house. And though it never mentioned the address, the article contained enough information to pinpoint the location. The Harkanells lived near a new shopping center and across the street from a park. Theirs was the only new house on the block.
It took Straine ten minutes to ﬁnd the house from his ofﬁce. He knew the location of the shopping center, and he drove there, then located the park.
Straine said, “It was weird driving up the street with the photograph, and there’s his house. We could even identify the design on the front door and match it with the photograph in the newspaper as we drove up the street.”
As soon as he returned to his ofﬁce, Straine called the assistant district attorney. Harkanell was arrested the next day. Harkanell appealed for assistance from the nonproﬁt organization that had helped him buy his house. They agreed to help him—on the condition that he promise to come clean. The organization contacted the hospital’s community out-reach program to request that the charge be dropped, or at least decreased from a felony to a misdemeanor.
The hospital declined to drop the charge. The nonproﬁt group pleaded Harkanell’s case, pointing out that he had a wife and a sick child who would have to go on welfare if he were convicted of a felony.
Straine made it clear that the hospital would pursue a conviction, whether a felony or a misdemeanor. The hospital’s position was that Harkanell should at least have to face a judge. (Later, the assistant district attorney revealed that had Harkanell pleaded guilty to the felony charge, the judge would have sentenced him to twenty-ﬁve years.)
While Harkanell continued to try to get the charges dropped, another piece of his past caught up with him. A separate party ﬁled a forgery claim with the district attorney’s ofﬁce. As soon as the nonproﬁt organization got word of this development, it refused to provide any additional assistance to Harkanell.
A judge sentenced Jerry Harkanell to thirty-ﬁve years in prison. Law enforcement ofﬁcials escorted him from the courtroom directly to a jail cell.
What type of fraud did Harkanell commit and what scheme
Outline the triangle of fraud in the case give examples
From the case above was there prediction explain
How could hospital prevent the fraud
How could the hospital detect the fraud scheme