Lessons from an $8 million fraud What the criminal was thinking and what can be done to prevent or uncover similar crimes
EXECUTIVE SUMMARY * A corporate mistake opened the door for Nathan J. Mueller's fraud. Two years after the error was made, he discovered he was authorized to request and approve checks of up to $250,000. A co-worker also was accidentally granted the same privileges, while a subordinate was authorized to request checks. * Mueller, his subordinate, and the co-worker often logged on as one another to get work done. This allowed Mueller to request checks under one identity and then approve them under his own account. * Mueller and his subordinate were allowed to physically pick up checks. This allowed Mueller to take physical checks to the bank to be deposited into the account of a fake vendor he set up. * Mueller hid his debits in ledger accounts that he controlled. Better separation of duties could have helped to prevent the scheme. * The fraud netted nearly $8.5 million in four years. The money was used to buy expensive cars, watches, and nighttime entertainment as well as to pay for numerous trips from Minnesota to Las Vegas. Living beyond one's means is a classic red flag of possible fraud. * Mueller told his wife his extra money was from gambling winnings. After a while, she began to doubt that explanation, and they divorced. * The fraud was uncovered when Mueller's ex-wife expressed her doubts about his income to his co-worker. The co-worker spotted questionable transactions in the company records and brought them to management's attention. The scheme unraveled quickly after that. * Mueller was sentenced to 97 months in federal prison after pleading guilty to fraud. He is due to be released in September after 5V2 years in prison. ********** [ILLUSTRATION OMITTED] In hindsight, it seems obvious: Nathan J. Mueller's pilfering of financial services giant ING should have never been allowed to start, much less last as long as it did. First, it was an accident that gave Mueller, an employee in ING's reinsurance division, the authority to approve company checks of up to $250,000. Then, the check his credit card company returned to ING could have exposed his theft in the first year, but the accounts payable department simply returned the check to him. Finally, the evidence that he was living far beyond his means--the expensive cars and watches, the lavish nightlife, the frequent trips from Minnesota to Las Vegas--could have raised a few eyebrows among his co-workers, but nobody voiced any concerns for years. In the end, Mueller embezzled nearly $8.5 million from ING over four years and three months. When he was caught, he was sentenced to 97 months in prison--a term that he began in February 2009 at the Federal Prison Camp in Duluth, Minn. Why should anyone care about Nathan J. Mueller? His case is noteworthy because of the millions of dollars involved and the length of time that his scheme went undetected and because his scheme was made possible by a breach of controls. This article describes the fraud in Mueller's own words and examines the lessons learned with strategies for management on how to prevent and detect similar schemes. THE PATH TO ING Mueller grew up in a small town in south central Minnesota. A high school friend remembers that Mueller was popular in school, decent at athletics, and competent at his schoolwork, and that he liked to play rap music "pretty loud in his car" whenever he could. The friend also remembers that Mueller's family was always on a tight budget and that Mueller didn't like living that way Mueller attended a private liberal arts college and graduated with an accounting degree in 1996. He enjoyed the inner workings of accounting systems, and in 2000 he found himself part of ING after his employer, life insurance company ReliaStar, was acquired for more than $6 billion. Mueller played a lead role in transitioning his old employer onto a new enterprise resource planning (ERP) system. …