5 Steps to Defeat an Ignorance Plea
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The old adage goes “ignorance is bliss.” However, an ignorance plea in a fraud case is anything but for a fraud examiner. In February 2021, a tip was reported to the Tennessee Comptroller of the Treasury, raising concerns over the financial conduct and alleged theft of more than $75,000 from a non-profit named Main Street, Lawrenceburg, Inc (MSL). Michael Booher, CFE, CPA, senior investigator at the Tennessee Comptroller of the Treasury, outlined the case in his session at the 35th Annual ACFE Global Fraud Conference, titled “Ignorance is Blitz: A Case Study of Overcoming a Subject’s Ignorance Defense.”
The previous executive director of Main Street, April Judkins, received a phone call from Booher’s office to speak about her work and agreed to the meeting. Throughout the conversation, she confirmed allegations of misappropriation, claiming any wrongdoing was just an honest mistake. So, was there malicious intent, and if so, how do you prove it?
A significant portion of the session was dedicated to discussing the importance of proving intent in fraud cases. Booher emphasized how the claim of ignorance can be a formidable obstacle in establishing intent, which is crucial for prosecution under many jurisdictions’ theft and money laundering statutes.
Booher highlighted that an effective investigation often requires a cyclical approach, where investigators must revisit previous steps multiple times to uncover the full scope of the fraudulent activity. This iterative process is essential to build a comprehensive case and gather the necessary evidence to prove intent.
Booher outlined the common investigative process for his office, highlighting the cyclical nature of the need to return to previous steps, often repeatedly, such as obtaining records, talking to people and analyzing records. So, the cycle begins.
The team began their investigation by speaking with those who were active with MSL, primarily their board that consisted of a president, vice president and treasurer. Through discussions, the following was revealed:
20 extra paychecks were paid to Judkins from 2015 to 2018 totaling $9,016.
A $1,500 unauthorized transfer from a related nonprofit organization, which at the time, the payer account had insufficient funds.
Undocumented “reimbursements” for no known business purposes amounted to $1017.72.
Unauthorized cash withdrawals of $415.
Six extra payments were received for cellphone reimbursements totaling $540.
Proving Intent
Booher offered an array of tools that fraud examiners can use to counter an “ignorance” claim:
The subject’s training history and their knowledge of the correct procedures.
Documentation of the subject performing actions the “right way,” indicating the intentional deviation in behavior.
Proof of efforts to conceal wrongdoing.
Refutations by related people.
Personal incentive to commit the action.
With these tools, Booher built a strong argument against Judkin’s claim. Her bank records indicated that before she issued the extra paychecks to herself, her bank account balance was overdrawn five out of the eight deposits.
Judkins also had a history of performing her duties correctly for 3.5 years before her three-year period of misappropriation. Twelve people were contacted for refutations of her actions, and of the 12, 11 of them said her use of funds were not allowable; the other person believed it to be okay because “April said it was.”
These actions ultimately led to the Tennessee Comptroller of the Treasury reporting to the District Attorney, resulting in Judkins being indicted on charges of aggregate theft and two counts of money laundering.
Takeaways
Booher's session underscored the complexities of fraud investigations and the challenges posed by an ignorance defense. Through a detailed case study and practical tools, he demonstrated how to dismantle such a defense effectively. Attendees left equipped with strategies to prove intent, overcome claims of ignorance and ensure successful prosecutions, making Booher’s insights invaluable for fraud examiners facing similar cases.
