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ABUSE OF POWER: A FRAUD PERPETRATED BY THE MAYOR OF LYNWOOD, CALIFORNIA

ABUSE OF POWER: A FRAUD PERPETRATED BY THE MAYOR OF LYNWOOD, CALIFORNIA. Ghada AbdelKhalek - Peter Gardi Jaymie Langford - Laura Anne Pray - May Wong. Lynwood Facts. Located in Los Angeles County, CA Population of 72,984 Per Capita: $10,640 Where Paris Hilton & Nicole Richie were jailed.

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ABUSE OF POWER: A FRAUD PERPETRATED BY THE MAYOR OF LYNWOOD, CALIFORNIA

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  1. ABUSE OF POWER: A FRAUD PERPETRATED BY THE MAYOR OF LYNWOOD, CALIFORNIA Ghada AbdelKhalek - Peter Gardi Jaymie Langford - Laura Anne Pray - May Wong

  2. Lynwood Facts • Located in Los Angeles County, CA • Population of 72,984 • Per Capita: $10,640 • Where Paris Hilton & Nicole Richie were jailed

  3. Paul H. Richards, II • Mayor of Lynwood, CA for 7 terms • Created consulting firm- Allied Government Services (AGS) • Used control over city council to award AGS contracts

  4. Contracts Involving AGS • Nuisance Abatement Contract • $25,000/month • Transportation Contract w/ Trolley Operator • $60,000 • Billboard Contracts • $960,000

  5. Detection of Fraud • Fraud lasted 1999 – 2003 • Los Angeles Times published articles • Election recalled • Richards removed from office

  6. Charges to the PerpetratorsMarch 20,2006 Paul H. "Petey" Richards II Former Mayor of Lynwood • Convicted on 35 counts of extortion, fraud, money laundering and making false statements to investigators • Sentenced to 188 months in federal prison • Longest sentence ever

  7. Paula Cameo Harris President & Owner of Allied Government Services Sentenced to 72 months in prison Bevan Atlee Thomas Former consultant to Lynwood Sentenced to 119 months in prison Charges to the PerpetratorsMarch 20,2006

  8. “There’s no question that this sentence is one that is going to be heard by politicians everywhere, that if you abuse your position of trust, if you violate your oath of office, you’re going to face serious consequences. Deterrence is a factor that the judge considered in sentencing ... and we think that this sentence will have a deterrent effect.” Assistant U.S. Attorney Daniel Shallman Representative of the U.S. Attorney’s Office

  9. Fausten Gonzalez, the city manager, resigned even before the new council were elected. New city council voted 3-2 to revise its agreement with Commuter Bus Lines Company no longer required to pay AGS a consulting fee as a condition of its contract. New council lineup also voted to rescind both the 10-year nuisance abatement contract and the deal with Regency. Changes at Lynwood City Hall

  10. Steps against Fraud • Auditors’ Findings of Internal Control Deficiencies • Public Integrity Division (PID) - aggressive investigation • Los Angeles County Fraud Hotline • Saved taxpayers more than $16 million since 1988

  11. Civil Initiative • Lynwood Watch – lynwoodwatch.blogspot.com • A website created by an anonymous blogger to keep watch on city officials & how city resources are handled. • The blog encourages readers to voice their opinions, and they do.

  12. In the News - April 13, 2007 Lynwood City Council Members Jailed, Released On Bail • 5 members charged with misappropriation of public funds • Unfortunately, ex-mayor Paul Richard's harsh sentence had NO deterrent effect on the successor city officials of Lynwood

  13. How Management Failed to Detect the Fraud • Mayor failed to disclosed link to AGS • Mayor overrode controls • Management were not skeptical • Management did not follow policies or normal practices

  14. How Management Would Have Detected/Prevented the Fraud • Segregation of Duties • Stricter Policies & Practices • Appropriate Reviews & Approvals of Transactions • More Frequent Reconciliations • Contract Monitoring • Budget/Actual Comparison

  15. Were Management Being Distracted? • Majority of City Council members enjoyed: • Six-figure incomes • Lavish foreign travel • Generous use of City credit cards for meals and entertainment

  16. Types of Examination Conducted in an Audit • Legal compliance test • Verification of financial record

  17. What Auditors Should Have Done • Analytical procedures • Documentation • Presentation and disclosure • Staff interviews

  18. Facts About the Audit • Original Auditors: Simpson & Simpson • Gave unqualified opinions • Had no findings • Classified client as "low risk auditee” • New Auditors: Moss, Levy & Hartzheim • Had 30 findings • Found inefficiencies in internal controls • Gave disclaimers of opinion

  19. Fraud vs. Error • Intentional • Unintentional

  20. Types of Fraud and Abuse • Fraudulent financial reporting • Misappropriation of assets • Abuse

  21. Fraud Triangle Perceived Opportunity Perceived Pressure Rationalization

  22. Why This Case? • Simple fraud resulting in large losses • Did not take any financial savvy to perpetrate • Could have easily been discovered by auditors • Longest political corruption sentence

  23. Questions????

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