POOLE WORKED FOR A SOUTHEASTERN U.S. city as a municipal finance director for approximately 20 years. His peers described him as an excellent employee. Poole was also treasurer of the local waterway commission. Allen, a local insurance agent, served on the county commission for approximately 10 years, most recently as chairman. Allen shared an office building with Morris, a general manager of the Thomas Insurance Agency, an independent agent that sold insurance for various insurance companies.
Poole was responsible for the city's insurance. Throughout his tenure, the Thomas Agency provided all of the city's coverage, except for health insurance, and during this time there had been no competitive bidding for coverage. Problems began to emerge when Poole failed to meet three deadlines for balancing the city's ledger, a requirement for a state audit.
Around the same time, the city council transferred responsibility for its insurance from Poole to the purchasing department. Moreover, the city hired an insurance consulting firm that discovered many unexplainable discrepancies, such as insurance billings that were not supported by charges on the policy for the same amount and billings higher than market rates. These problems led city officials to contact a legislative auditor. The auditor uncovered significant fraud within the city, as well as at the county and waterway commissions, that had been ongoing for years. The fraud, aided by lapses in control at the Thomas Agency and its local bank, was made possible by serious internal control deficiencies at the three government bodies.
The audit revealed that Morris had overcharged the city more than US $585,000 on billings of almost US $1.9 million over a five-year period. A subsequent audit by the city revealed Morris had overcharged the city an additional US $180,000 in the five years before the period covered by the legislative audit. During a 10-year period, Poole approved inflated bills for insurance premiums that Morris submitted to the city, and the city wrote a check to the Thomas Agency--sometimes the same day. Morris added fees to some of the city insurance billings, in excess of the insurance company charges and split those fees with Allen, his agency, and the Thomas Agency. Furthermore, Morris endorsed city checks paid to the Thomas Agency and converted them at the bank into cash and money orders payable to himself, Allen, and the two agencies.
The audit also revealed that US $118,750 of the overbillings from the Thomas Agency was for an administrative claims-handling agreement that was neither needed nor approved by the city, as another company already provided the service. Morris diverted the funds the city paid under this agreement to himself and Allen. Although Poole was unable to describe the services performed by the Thomas Agency, he stated that the payments were made pursuant to the agreement. However, the agreement he presented was obviously fraudulently prepared, as it was dated more than four years before the Thomas Agency began using the letterhead on which it was typed.
In addition, the auditors discovered that Poole had approved inflated invoices. The Thomas Agency sent the city both a policy and invoice, but Poole had failed to compare the documents. The insurance policies corresponding to the inflated invoices had a gold Thomas Agency sticker placed over the insurance company's premium amount, thus concealing the discrepancy. Unlike the city, the county commission sought bids for insurance coverage. Not surprisingly, Allen had voted for coverage offered by the Thomas Agency, and other county commission members stated that he solicited their support for this coverage. Over a three-year period, the county commission purchased more than US $1.7 million in health, life, and dental insurance from the Thomas Agency for its employees. The agency received almost US $58,000 in commissions on this coverage and, at the direction of Morris, paid Allen nearly half this amount. In receiving this money, Allen violated state law by receiving partial payments from county commission insurance premiums while serving on the commission.
Problems, albeit to a lesser extent, were also found in the operation of the waterway commission. Morris overcharged the commission for various policies and billed it for a nonexistent policy. Poole paid these bills even though commission files contained a statement from one underwriting insurance company showing a breakdown of the policy charges that totaled a lower amount.
On one occasion, when the waterway commission was owed a refund due to a reduction in premiums, Morris instructed an account representative to void the original refund check and issue a replacement check payable to Poole. The refund check was endorsed and cashed, but the cash was not deposited into the waterway commission's bank account. Poole admitted that the signature looked like his, but said he did not cash the check. According to the bank, however, it requires positive identification before cashing any check.
Thanks to: Mr. Gordon Heslop
