Oh My Fraud

Would you tell your significant other if you were stealing money? What excuse would you use for all your extra cash? The one Nathan Mueller came up with directly led to him getting caught. Hear how Nathan's $8 million check-fraud scheme came crashing down from his wife’s loose lips.

Show Notes



In less than 10 minutes, you can earn 1 hour of NASBA-approved accounting CPE after listening to this episode. Download our mobile app, sign up, and look for the Oh My Fraud channel. Register for the course, complete a short quiz, and get your CPE certificate.

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Lessons from an $8 million fraud — Journal of Accountancy

Report to the Nations 2020 — ACFE

Nathan Mueller’s LinkedIn profile — LinkedIn

The 2013 Marquet Report on Embezzlement — Chris Marquet

Mueller gets 8 years for $8.5 million ING fraud [MST]

Eden Prairie Man Sentenced to 97 Months for Defrauding His Employer [FBI]


Thank you to our sponsor, Avalara. Avalara’s award-winning tax automation solutions help accounting practitioners and businesses of all sizes simplify sales tax compliance and with real-time rates, automated returns filing, and more.

In October 2021 IDC MarketScape named Avalara a Leader in tax automation in three categories (small and midsize business, enterprise, and VAT).  If you’re considering tax automation, check out the independent IDC evaluations at http://OMF.show/avalara

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In less than 10 minutes, you can earn 1 hour of NASBA-approved accounting CPE after listening to this episode. Download our mobile app, sign up, and look for the Oh My Fraud channel. Register for the course, complete a short quiz and get your CPE certificate.

Download the app:

Apple: https://apps.apple.com/us/app/earmark-cpe/id1562599728
Android: https://play.google.com/store/apps/details?id=com.earmarkcpe.app

Questions? Need help? Email support@earmarkcpe.com.


Greg Kyte, CPA
Twitter: https://twitter.com/gregkyte
LinkedIn: https://www.linkedin.com/in/gregkyte/

Caleb Newquist
Twitter: https://twitter.com/cnewquist
LinkedIn: https://www.linkedin.com/in/calebnewquist/

Creators & Guests

Caleb Newquist
Writer l Content at @GustoHQ | Co-host @ohmyfraud | Founding editor @going_concern | Former @CCDedu prof | @JeffSymphony board member | Trying to pay attention.
Greg Kyte, CPA
Mega-pastor of @comedychurch and the de facto worlds greatest accounting cartoonist.

What is Oh My Fraud?

"Oh My Fraud" is an irreverent podcast from CPA/comedian Greg Kyte and blogger/former CPA Caleb Newquist.

The two come together to unpack their favorite frauds and explore the circumstances, psychology, and interpersonal dynamics involved. They also fully indulge in victim-blaming the defrauded widows, orphans, infirm and feeble-minded—because who can resist?

If you fancy yourself a trusted advisor—or prefer your true crime with spreadsheets instead of corpses—listen to this show to learn what to watch out for to keep your clients, your firm, and even yourself safe.

[00:00:00] How to earn free CPE for listening to this episode

Blake: If you'd like to earn CPE credit for listening to this episode, visit earmarkcpe.com, download the app, take a short quiz, and get your CPE certificate. Continuing education has never been so easy. And now, onto the episode.

[00:00:22] Thank you to our sponsor, Avalara

Caleb: Thank you to our sponsor, Avalara. Avalara’s award-winning tax automation solutions help accounting practitioners and businesses of all sizes simplify sales tax compliance with real-time rates, automated returns filing, and more. Listen for a special offer later in the show.

[00:00:38] Welcome to Oh My Fraud

Greg: Hello, and welcome to another episode of Oh My Fraud, a true crime podcast, but ours features accounting managers who embezzled millions of dollars, instead of accounting managers who chop up their coworkers. I am Greg Kyte.

Caleb: And I am Caleb Newquist.

Greg: Glad to be back for another episode with you, Caleb.

Caleb: Likewise, Greg. I have never been an accounting manager, and likewise, I have never chopped up any co-workers. So, I'm feeling good.

Greg: Good. All that’s missing from what you just said was you never said, “I never embezzled millions of dollars,” so that's nice to keep a little air of mystery about yourself. But here's a question for you, Caleb.

[00:01:27] Do you ever fantasize about stealing?

Greg: Do you ever fantasize about stealing large or small items, large or small dollar amounts? Do you ever fantasize about doing that?

Caleb: So, present day fantasies or past fantasies? I just want to be clear here.

Greg: Yeah, either one.

Caleb: As a youth, all of my stealing was either as an accessory, or as a- it was small time shoplifting and I was never the klepto. I was never the actual thief; I was always a decoy or something.

Greg: Right.

Caleb: But I never felt good about it. Never felt good about it. But also, it was usually stealing things like chewing tobacco, or beer, or things that I wasn't supposed to be doing anyway. As a person, as an adult, I think stealing- I could not tell you the last thing I stole. So, yeah, I don't think- I really don't fantasize about it at all.

Greg: Cool.

Caleb: Do you fantasize about it?

Greg: I think sometimes I do; to be just dead honest, when you and I talk about some of these accounting frauds that we jump into, I go, “I don't think I could do that.”

Caleb: Yeah.

Greg: I mean, not morally. Like you were saying, I think my conscience would prevent me from doing it, but I think I have the skills to pull it off.

Caleb: So, now that you mention it, I have occasionally fantasized about being a jewel thief.

Greg: Oh yeah?

Caleb: Yeah. Or an art thief, or actually, on a border, in a more boring sense. I think I'd be a great fence. I'd make a great fence. I could have a squeaky gate and deal in stolen goods. That's what I think I would be good at.

Greg: Gotcha. So then, let's take it a little bit deeper. ‘Cause we've- again, with the different ways that we've explored fraud, one of the things that comes up in a lot of the cases that we explained, is that these people perpetrating specifically, embezzlement cases, end up with just tons and tons of money that they clearly did not get from their day job.

Let's say just hypothetically, you were a fraudster and you embezzled, let's say you embezzled $8 million over four years. Do you have any idea of how you would explain that to those around you?

Caleb: I think there's two ways to go about it. I think number one, lottery winnings is perfectly plausible, and yet complete bullshit. But it's just plausible enough that I think lottery winnings or gambling winnings, most people- if it was my wife, I mean, my God, it would really- ‘cause my wife and I are very close.

And so, it's one of those things where she'd be like, “You're so full of shit.” I would really have to have a good story. Right? But for people that aren't as close to me, I think an inheritance is probably a pretty reasonable story that's probably a little bit more plausible. It would probably have to be one of those two.

And there's still holes in both. I don't know how long it would actually last. What about you?

Greg: Right. And well, it's funny ‘cause the exact same things, lottery and inheritance. Those are the two things I came up with. So, I guess we figured it out. Lottery is the thing.

Caleb: I think part of the appeal of fraud, at least in the early days of any fraud, is that it's fun. You're getting-

Greg: Right. And while-

Caleb: Yeah, you're getting money and you're blowing it on stupid shit, and it's just great.

Greg: Stupid shit.

Caleb: It feels great.

Greg: It's gotta be. It's gotta be. But it seems like with every case we look at, that ends up blowing up in their face, and that's actually exactly the case in the fraud that we're going to look at today on this very podcast, is two things. One, the fraudsters’ backstory is incredibly important because in this case, the explanation for the ill-gotten gain was exactly what got our fraudster caught.

And to a- maybe not equally significant degree, but to a very significant degree, he also kept his fraud completely hidden from his wife. And that was another one of the major- that was a rug that got pulled out from under him that led to his downfall. So, when we come back, we are going to get into the case of ‘With Great Check Writing Power, Comes Great Responsibility.’

It's a story about how a guy stole millions of dollars from the massive insurance company, ING. So, stick around and we'll tell you all about it. In this episode of Oh My Fraud, we're talking about a guy who single-handedly misappropriated $8 million from the insurance giant, ING. And he did it in four years. He started stealing money in 2003, he was caught in 2007. And what's weird about this- and we're going to get into it in a bit- is that if he had just stopped after his first $88,000, he would've gotten away with it scot-free.

Caleb: So, let me just say- I mean, but who's stops. What fraudster has self-control? That's my question. Does anyone?

Greg: The good ones, the ones we don’t know about.

Caleb: The ones that we won't be talking about, obviously.

Greg: Right. No, exactly. Don't you agree though? Because it’s like, it’s-

Caleb: No, that's right. No, that's exactly right. The fraudsters who can't- the fraudsters with self-control, we will never talk about.

Greg: Yeah. And it goes back to the fantasies that I've had about doing this kind of stuff, is I go, “Oh, my gosh. If you're not greedy-” which is weird, because obviously, if you're embezzling money, you're a greedy son of a bitch. That's clear, but you know what I mean.

It's like, if you don't get greedy with how much you're stealing from your company, if you just keep it to a reasonable level of the theft, you're likely going to get away with it for much, much longer, if not get away with it for good. And that's part of the whole thing. We're dangerous, Caleb, you, and me because we know how to do this.

Caleb: So, anyway, getting back to the story.

Greg: Yes.

Caleb: Set us up, Greg. Where are we at?

Greg: So, we're in Minnesota, and the guy that we're talking about is Nathan Mueller. And so, he worked at this company called ReliaStar. It was a life insurance company. And in 2000, in the year 2000, his company, ReliaStar, was acquired by the big daddy, ING, and-

Caleb: ING is not an American company. It's a Dutch company. And it's been acquired in recent- more recent years, it was acquired by Capital One.

Greg: So, yeah, like I said, in the year 2000, his company got acquired by ING, but it took him two years.

[00:08:39] Nathan discovers he can approve checks up to $250,000

Greg: So, in 2002, he discovered that both he and a co-worker had the authority to approve checks up to a quarter million dollars. They could single-handedly approve checks up to that ridiculously high amount. It didn't have to be like, “You approve it, and I approve it, and then the $250,000 ready to go.”

It’s just like, he alone could just say, “Hey, we need to cut a check for $250,000.” And when he found that out, he was very- one, he was like, “That's ridiculous.” And two, “That was a mistake.” Not just that it was an oversight or people didn't think through it, it was he categorizes that himself in his own account of this story. He says that he was- he and his coworker were both mistakenly given the authority to prove checks up to that astronomical amount.

So, once he got acquired by ING, he worked in a very, very small accounting department. They didn't get into the details of this, but it sounds like there was about six- there was only about six people in his department, and really, there was three people. He and two other people, it sounded like, worked very, very closely together and were very integral to each other's jobs.

And so, basically, this was the way the separation of duties was supposed to do, is someone was going to request a check. Another person is supposed to approve the requested check, and then a separate person was going to go and physically pick up the checks. That was the separation of duties that they had.

That makes sense. That's a wonderful internal control. We talk about that a lot as being the basics of how you prevent fraud, is you segregate your duties, right?

Caleb: So, wait a minute. Wait a minute. Yes, yes. But my question for you then, isn't there room for error or malfeasance because there's overlap between all of these? Shouldn't- or I mean- so, I guess I understand in some scenarios, like, “Oh, if staff person number one isn't available to request the check, then staff number two can request the check.”

But the primary person who does that, or the primary person who does approval, or the primary person who picks up the checks, I just wonder- I know you can't- what they say in your fraud classes is, there's no guarantee to eliminate, you can't guarantee that fraud won't occur. But I just wonder about the separation, but also, the overlap of duties.

Greg: Right. And that's a great question, because I am unsure which would actually be a tighter internal control. Because what you're saying is that it would appear that it would be tighter if you had one person, and only one person who requested checks, one person, and only one person who could authorize checks, and one person, and only one person who could pick up the checks.

And I get what you're saying. And that does make sense that that would be- that that seems to be a tighter level of internal control. But I think as long as it's not the same person, whoever requests the check, that precludes them from authorizing the check. Do you see what I'm saying?

Caleb: I do, yeah.

Greg: And then whoever authorizes the check, that precludes them from the physical custody of the check. So, I think if that's the case, then I think you've got just as tight of internal controls, and possibly tighter. Because one of the things that we've seen is that people who are perpetrating frauds often don't want to share their responsibilities with others. So, this forces- well, maybe not forces, but this at least allows for sharing of responsibilities among these different people.

Caleb: Yeah. And I guess the other detail that I'll point- that I would point out, and then I will let you continue. But I think another factor here is because it's a small accounting department. So, the other thing that I just was thinking about is, well, if you had these three important pieces of, I guess custo- if you had these three custodial activities.

The request, the approval, and then the physical possession, right? If you had a team of six, you could have two staff members on each, and they wouldn't have overlapped, and that would be as about as tight as you could do it, right? Does that make sense?

Greg: Right. Yeah, that does make sense. That seems like it’s- that'd be both sharing responsibilities and very tight segregation of duties. So, you're right. Why aren't you out being a consultant for internal controls? Why are you here?

Caleb: Oh, I think it's because I enjoy my life.

Greg: Right, right. Good.

Caleb: I like what I’m doing.

Greg: That's a good- that's a great answer. So, here's the thing though.

[00:13:45] Co-workers shared passwords with each other

Greg: So, that's how the internal controls were supposed to work, is how we just described. But the problem was with these three people, with Nathan Mueller and his coworker- and his two coworkers that had those- that shared those three responsibilities, the problem is with only three of them there, if any one of the three was out of the office, they would come to a complete standstill in terms of actually getting their work done.

So, what their practical workaround was, is they just told each other their passwords and logins to get into the system. So, if Nathan was home sick with COVID one day, the rest of the- their department could actually continue to function, which A, makes sense, but B, makes the internal controls completely useless. It completely neuters the internal controls.

Caleb: Yes. So, an antidote to internal controls it, if I understand it correctly, is either laziness or convenience.

Greg: Right. Which is awesome that you say that, because a lot of times, you go, the way to get around internal controls is collusion, where you need all three of these people to be greedy and lack scruples.

Caleb: Morally compromised.

Greg: Yeah, exactly. But instead, it's like, “Or we just got a job to get done, and we don't want to wait until Wednesday if Debbie took a personal day today.”

Caleb: I got to cut the check today.

Greg: We got to go; these people need to be paid. This is our responsibility as an insurance company, to make sure people get their payouts up from the policy they've been paying on premiums for years, forever. Haven't you seen the movie, The Incredibles? Do you understand what I'm saying by that one?

Caleb: I do. I've seen it many times and it's a great film.

Greg: Perfect. I love that movie.

Caleb: And if you don't know that reference, then, well, fuck off. Anyway.

Greg: Treat yourself. Oh, you're, “Fuck off.” I'm like, “Treat yourself, go check it out. It's a nice thing.” And you're like, “Go to hell or you're a bad person.” If you haven't seen The Incredibles by now, just-

Caleb: It has been almost 20 years. Come on, [INAUDIBLE].

Greg: Good point. Good point. No, I am not saying you're wrong.

[00:16:01] Thank you to our sponsor, Avalara

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[00:17:12] The backstory on Nathan Mueller

Greg: So, here’s another- so, obviously, we're setting up for this whole thing of Nathan Mueller to start stealing money, but also, to give a little more backstory on this. So, Nathan Mueller, his annual salary- again, we're talking in the early 2000s- was $80,000 a year, and he had $88,000 of consumer debt and student loans.

So, basically, it's like his credit card debt, I guess, maybe a car loan and some student loans altogether, that was $88,000. He also had a mortgage on his home, but what he was- what he said, “My $88,000-a-year salary just wasn't cutting it,” with paying off his $88,000 worth of consumer debt.

And on one hand, I get that, because if your consumer debt equals more than a year's salary, even David Ramsey is going to be a little concerned about your ability to pay that off, even if you really get Gazelle focused on paying off your debt. But the other thing is that you've got to realize that in 2003, which is when he started stealing money, the median household income in Minnesota was only $52,000, almost $53,000- just under $53,000.

So, he was making significantly more than most people who lived in his state. He was well above the median. So, he's doing okay-

Caleb: He’s doing fine.

Greg: But he's thinking to himself, “Oh no, I'm not. I can't pay off this debt.” I think that speaks to his inclination for his lifestyle choices. Because again, if you're just a- if you're living below your means, that's how you pay off debt, or steal money from your company. And he chose to not live below his means; that was too much of a sacrifice. So, next thing was to steal money. Another thing, and I guess we didn't get the-

Caleb: He could have- maybe he could have figured out a side hustle. I guess stealing was the side hustle.

Greg: It was the side hustle. And the last thing to just put in here into the mix was, like I said, it was in 2002 that he realized he had this check approval power up to a quarter million dollars. But it was also after he realized that, that all of a sudden, the light bulb came on, he's like, “Oh, crap, not only can I approve checks up to this insane amount of money, but also I, 100 percent, could just log in as somebody else, request a check, go back in and approve it myself.”

And again, just putting together the pieces of the internal control, segregation of duties puzzle that was in his department. It sounds like the requester could still have physical possession- could go pick up the check. So, as long as you didn't authorize it, you could request it and pick it up. So, he was like, “Oh, shoot, I could 100 percent take care of all of this.”

So, he realized all this, he realized what he could do in 2002. He did not start stealing money until 2003. So, it was- he says in his account of this story, he was tempted every day for an entire year, by the pot of gold that he was sitting on, meaning all of the money from ING that he could steal from them. So, that's the setup to him starting this entire scheme.

Caleb: Well, the initial little spurt of willpower is admirable.

Greg: Right, yeah. Well, no. Kinda not. Kinda not, and we'll get to that.

Caleb: He caved. He caved. He crumbled.

Greg: He will. And when we get to our- to the lessons learned, I'll dive in with you into why that's not so admirable; that his year of embezzlement abstinence was not as admirable as it might first appear.

Caleb: Well, if you just self-service that stuff, then usually, you're fine.

Greg: Right, right. If you just steal money from yourself, it just gets the-

Caleb: It gets the job done.

[00:21:32] First time he stole money

Greg: The release, yeah. So, in 2003- so, in June 2003, that's when he first started stealing money. So, he did exactly what he said. He requested and approved a check for a mere $1,100, which is a drop in the bucket compared to what his total check authorizing authority- his check approval authority was.

So, he requested and approved a check for $1,100. He had the check made payable to one of his credit cards. Interesting side note is that one of the- the credit card he was paying off, it had Universal as part of the name for the credit card. And one of the main vendors that ING paid through his department also had Universal in its name.

So, he was thinking, “Oh, this is a way to be slick, because if anybody just does a quick glance down the check register, they'll key in on Universal. And it won't raise any suspicions, because the similarity to a name in a lot of other checks.” And I go, “Yeah, that's probably the case.”

So, he started with, with $1100, he sent that in. Apparently, he was sweating bullets, because he was well aware of the fact that he could lose his $80,000-a-year job for stealing $1,100. And that's a bad ROI on your thievery endeavor. So, the first one was 1100. He got it.

He requested it, approved it, got it, sent it in, it hit his account and he goes, “Awesome.” The next one, he went from $1100 to $1800, and by the end of August- so, June, July, August. So, within three months, he paid off all $88,000 of debt that he had. Again, he was very specific that did not include his mortgage on his home, but in terms of that consumer debt that was really his problem, he paid it all off in three months.

So, he went bonkers. I mean, if you think about, if all of the checks were somewhere around between one and $4,000, he’s requesting what, maybe 30 checks over the course of this time; 20 to 30 checks to pay off that debt, wouldn't you say?

Caleb: Yeah. I take back what I said about willpower.

Greg: Right.

Caleb: Yeah.

Greg: He lost it all right there.

Caleb: I mean, he paid it off really fast.

Greg: Yeah.

Caleb: Even with the approval up to 250, I mean, at least he didn't pay it all off in one shot, then we'd really be having- we'd be making really strange, gross jokes. But in this case, three months, so.

Greg: Yeah. And that is one of the interesting things. ‘Cause if he had just gone big and just requested one giant check for $88,000 and it went through, I think he would have been emboldened to a ridiculous degree, if he had done that way. But the other funny thing is it's a lot easier to bury one check for $88,000. I mean, again, if he's got approval authority up to $250,000, that must mean that his department is writing some pretty massive checks anyways.

So, maybe 88,000, just that dollar amount might not set off any bells or whistles as an outlier. And then with it just being one check, maybe it's easier to have it get lost in the minutiae. Which honestly, for auditors, that's the case. If you know auditing, you're taking samples because you're thinking that whatever's happening is happening to a large degree.

So, if you just have one- if you have one fraudulent check instead of 20 or 30, you have a smaller- it's less likely that you're going to get caught by the auditors that way.

Caleb: Yep. But when you also- you look at an entire population of transactions, and when you do- when you scope a job- I remember being a young auditor and you'd be looking at transactions after you've scoped a job. And depending on how big the job is, in the context of an audit, you ignore large sums of money all the time.

Greg: Yeah.

Caleb: And so, $1100, anyone who's even paying attention would be like- they would just- they wouldn't give it a second thought because in the grand scheme of the nature of this business, it's not a material amount, by a long shot. And say even $88,000 might've not been material, by a long shot.

Greg: Probably not.

Caleb: And so, that is what I think is always- it's always one of those things in accounting that I catch myself thinking about. And I don't know if other people have this thought too, but sometimes, the magnitude of the numbers, you just kinda forget about it. And that is what- that is part of what can make fraud so- maybe it's temptation, right? But it's just one of those things where for one person, these amounts of money can make an enormous difference. But in the context of even relatively good size company, it can completely go overlooked.

Greg: Yeah. Absolutely. Well, if you're talking about a billion-dollar company, which I'm sure ING is a multi-billion-dollar company in terms of just their revenue every year, $8 million over four years, that averages out to $2 million a year. 2 million out of a billion, that's point- even if ING was only a $1 billion company, that's 0.2 percent of their revenue, and that's well below any materiality threshold, not just for the $88,000, but for the 8 million that this guy took.

So, yeah, it gets pretty mind boggling when you think, not just about what’s stolen, but what these companies are making to where $8 million could get overlooked. So, as the story progresses, this is one of my favorite parts of this whole story.

[00:28:08] 2 things that made Mueller think he was caught

Greg: So, I believe this was the very last check that he had requested to pay off his $88,000. It was the very last one. It was a check for $4,500. He requested it, he authorized it, he got it. He sent it into the credit card company. And then two things happened that would have caused anybody to start just sweating and knowing that the gig was up.

A, he never saw the $4,500 posted to his credit card bill. So, the credit card company didn't get it. And he didn't see it coming through the bank account. It wasn't clearing ING's bank either. So, this $4,500 was out there, and it wasn't doing what it was supposed to be doing. And because of that, he was just sure that the gig was up. Every time the phone would ring, he was like, “This is going to be my boss telling me that I got a lot of ‘splaining to do about these checks to Universal credit card company.”

And so, he was dying with just anxiety and stress over this $4,500 check. Totally understandable. And then one day, he shows up at his desk, and there's one of those- he walked into his office, and there was just this ominous inner office envelope just waiting on his desk. And like I said, he's been expecting for his entire house of cards just to crumble with this $4,500 check.

He opens the envelope and inside the inner company envelope is the $4,500 check. And so, here's what had happened. Here's what he pieced together. So, he looks at the check, he realizes he forgot to put his credit card number on the check that he sent into his credit card company. And since the check didn't come from him, they couldn't tie it back from the credit card’s perspective. They got this random $4,500 check, and they're like, “Well, we don't know what the fuck to do with this check.”

And so, they're like, “Okay, we have no idea what credit card this gets applied to. So, I guess we just-” they’re like, “Who sent us the check? Just send it back to them. They'll figure out what's supposed to do.” So, they took the $4,500 check and they sent it back to ING's home office, just whatever the address was on the check.

So, the home office- not the Minnesota office- saw this check and whoever got it, just the clerk that got it there was like, “What the fuck is this $4,500 check for? We don't know who- where did it come from?” And they're probably just busy and going, “Oh, God, some more damn mail. I've got too much to do already. So, what do I- who can help me get to the bottom of this $4,500 check?”

And they're like, “Well, who requested it?” And they're like, “That person will know what it is.” And just by total dumb luck, Nathan Mueller himself had requested that check. So, he didn't log in to someone else to request this check. He logged in as himself to request the check.

So, they sent it back to him just going, “Hey, you requested this check, it came back to us. Figure out what's supposed to happen to make this right. Okay, Mueller?” And so, he gets his check back, and again, he dodged a fucking bullet with this whole thing, and he has the balls to take that check, and just put his account number on it, and send him back to the credit card company. And then he’s like, “Oh.”

Caleb: Oh, I can fix this.

Greg: Yeah. But think about it. ‘Cause on one hand, I go, “That was just big balls from Nathan Mueller to do that.” But then I also go, “It might've not have been, because what were his alternatives? Just go, “Hey, let's just void that check and not ever pay that money again.”” You know what I mean? It’s like he-

Caleb: Yeah, that would have looked bad, it’s like, “Oh, I guess they didn't need the $4,500. Yeah, we cut it by mistake, I don't know.” So, in other words, it's sometimes-

Greg: My bad.

Caleb: Yeah. Sometimes, it's better to be lucky than good at fraud, I guess.

Greg: And he was lucky at fraud that day, but he pissed his pants scared and he was like, “Okay, that was way too close. So, I'm done with stealing.” He was just like, “I'm out. I'm going to stop embezzling money.” And he did stop embezzling money for about six months.

And then- and again, it was really, just the temptation, because he hadn't gotten caught, and there was no- I mean, I imagine part of it too, like I said, he had this close call. He's still got the money from the close call, and then he's able to process what happened, and the weaknesses in his original plan.

[00:33:15] Nathan starts ACE Business Consulting

Greg: And then he was able to regroup and come back together. And that's when the big dollars started to fly out of ING, and into Nathan Mueller's accounts. So, in 2004- so, the $88,000 was all in the summer of 2003. And in the beginning of 2004, he registered- he started a business called ACE Business Consulting, LLC.

He registered it in the state of Minnesota. He got a tax ID number from the IRS for it, and he opened a checking account for it. And again, he very specifically named his company ACE Business Consulting for the same reason that he paid payments to Universal credit card, whatever, because they also did lots and lots of transactions with a company that was ACE something or other else.

So, he was like, “ACE Business Consulting, same thing. If people are glancing through it, it won't raise suspicions just by the name.” And this is when he really started swinging for the fences. His first check that he processed for himself through his little scheme to ACE Business Consulting was for $27,000.

Greg: So, he jumped from $4,500 to $27,000. Because at this point, I almost get the impression that he's just like, “I'm just going for- I'm swinging for the fences. There's no- I'm going to see what I can do here.” There was clearly, a lack of restraint, and also a lack of inhibition about what he was doing, at this point.

[00:34:59] Thank you to our sponsor, Avalara

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[00:35:51] Stole millions from 2004-2006 - increasing amount each year

Greg: So, like I said, first check that he did this way, $27,000. In all of 2004, he stole a total of $1 million in 2004. He stole then $2 million in 2005, and he stole $4 million in 2006. And for any of our mathematically inclined people out there, that's literally a geometric growth progression from one to two to four.

You're seeing him steal at literally, an exponential rate. The interesting thing- so, he got caught in 2007, and in 2007, he only stole $1 million that year. And there's a little bit of an explanation that we're going to get to in a bit, why his stealing went down before he got caught.

[00:36:49] How did Nathan hide his money from company?

Greg: And that's also an interesting bit of the story. But Caleb, you're probably wondering, how the hell did Nathan Mueller hide this money in the books? ‘Cause he couldn't have just- you credit cash and you debit the embezzlement account. That’s-

Caleb: Right. I mean, I think if you're perpetrating a fraud, I think one thing that you're probably always thinking about is how to cover your tracks. How do you make sure- because yes, these are small amounts, but they're getting larger. And even though none- he was not cutting any checks over the thresh- his inflated threshold, he had to have been thinking that he just wanted these things to be hidden so that nobody would ever come around and be asking questions.

Greg: Right. Exactly. And that’s-

Caleb: And so- yes, Greg, that's exactly what I've been thinking. How did he hide his fraud?

Greg: And I think this is super smart, is what- so, part of his job was doing foreign currency transactions from Canadian dollars. So, ING- people who understand insurance companies know they receive premiums from their clients, and then they invest a large portion of those premiums to earn money before they eventually have to withdraw those to pay out on different calamities that happen for people who insure with them.

And so, insurance companies are some of the biggest investors on the planet. Because they got tons of money that they want to make a little money on before they have to have to pay out to their customers. So, ING, based in the United State- or I guess ING U.S.- you said it was a Dutch company, I didn't know that. But he was supposed- regardless of how this was all structured, part of his job was doing the foreign currency exchange rate, booking that from the Canadian investments in the U.S. dollars.

[00:39:04] Fudging the exchange rate

Greg: And so, what he found out is that he could fudge the exchange rate in the accounting system to be either less or more than it was supposed to. And by doing so, he could just say that the money he took out was actually just a part of this whole foreign currency exchange job that he had. So, he just buried it in this regular thing that he did with reconciling Canadian dollars to U.S. dollars.

And I go, “That's super smart.”

Caleb: Super smart.

Greg: Because A, I can 100 percent see how you could easily manipulate stuff to hide your things. The second thing is nobody's going to want to spend time digging through the foreign currency reconciliation. As a matter of fact, I would think auditors would probably just go, “Okay, we're not even gonna look at those transactions, ‘cause that's just fake stuff to get money from one currency to another currency.” Don't you think?

Caleb: Yeah. I mean, I think the other thing is, is that it's one of those, because currency markets are traded a gazillion times every single day, the fluctuations in those exchange rates can vary widely at any given time, even throughout the day. And so, adjustments and things like that are perfectly plausible for any business that deals heavily in these, like ING would.

And so, yeah, I mean, he's burying it in a place where there would be a lot of activity, and there would be probably a fair number of adjustments on a regular basis. And no one would think twice about it. And so, yeah, I think as far as somebody trying to cover their tracks, he probably did about as good a job as he could have.

Greg: That's how he explained it and hid it at work. But like we were talking about before, he also had the job to explain the money to his family and friends, but most importantly, to his wife, because he did not.

[00:41:08] How did Nathan explain this new money to his family and friends

Greg: Unlike Caleb Newquist and Greg Kyte, he was going, “I'm doing this 100 percent solo. My wife does not even know that I'm stealing this money from my company.” So, he had to have an explanation to her. His original explanation was, “Hey honey, I'm doing some extra accounting gigs in the- moonlighting. And that's how I'm getting this extra money.”

Which maybe was a reasonable way to explain the first $88,000, but then, like we said, he quickly got into this much higher dollar amount that he was getting, that he was pulling out of ING. And so, with that, he changed his story.

[00:41:51] Winning Jackpots story he told his wife

Greg: And this is the story that he gave. He was like, “Hey, here's where I'm getting this money. I'm winning large jackpots on high-dollar slot machines when I go to Vegas.” Caleb, both of us were like, lottery seems like a good way to explain extra money, but having a system on slot machines is the dumbest and shittiest explanation for-

Caleb: It's a horrendous explanation.

Greg: Yeah. It's like, “Oh, how do you get all this money?” It's like, “I'm really, really good at games that are 100 percent just chance and blind luck. I've got a system for how I can trick the universe into allowing me to win slot machines at an ungodly rate.” And that was his explanation.

That's the most confusing thing about this story, to me, in terms of how anybody could even possibly believe that line of bullshit.

Caleb: I mean, he panicked. It sounds like he panicked. Did she catch him in a vulnerable position one time? Was he in the bathroom, and she's like, “Hey, by the way, where are you coming up with all this money?” and he's like, “Ah, I've been winning large jackpots on high-dollar slot machines.”

Greg: Yeah. So, that was his explanation. I'm going to say right now, both you and I, our explanations are way, way better. Say you won Mega Millions and you chose the annual payout. So, there was that. There was the high-dollar slot machine thing. This is another part of the story that is a little bit weird to me, for a completely other reason. In 2006- so, he got caught in 2007. In 2006, that was the year they stole $4 million in one year, was 2006.

And the way he recounts that year was, he was certain that he was going to eventually get caught, because he knew that this was going to be a short-lived thing, he needed to do what he could out of love for his wife, to insulate her from the consequences of his actions. And so, the way that he chose to insulate as wife, the woman that he loved, that he was so concerned about, not get caught up in his wrongdoings is that he decided to divorce her- because that was the loving thing to do to protect his wife.

Caleb: So, don't stop the fraud. Don't confess your crimes.

Greg: No.

Caleb: Don't turn yourself into the authorities.

Greg: No.

Caleb: Divorce your wife. And that's why I said, I don't know if I totally buy that. I think it's probably the guy wasn't real happy in his marriage, and used his embezzlement as a good excuse to get out of something he didn't want to be in anyways.

[00:45:00] Internal review at ING in 2007

Greg: So, in mid-2007- so again, 2007 is the year that he started cooling off. He stole much less money. In mid-2007, there was an internal review at ING that brought to- just made it public, the fact that it had been there since the year 2000, that both Nathan Mueller and one of his coworkers could approve checks up to $250,000.

So, they did this review, they’re going, “Hey, did you know you guys can approve checks under $250,000?” And Nathan Mueller's is like, “What? That much? That's weird.”

Caleb: That’s weird.

Greg: And then they're like, “Yeah, maybe that shouldn't be the case.” He was like, “Oh, yeah.”

Caleb: Definitely not.

Greg: Definitely. That's ridiculous. You totally need to, maybe we need to bring that down a lot. ‘Cause that seems risky to the company.

Caleb: Way too high.

Greg: “Huh.” So, I mean, again, he voluntarily- I mean, ‘voluntarily,’ I don't think he had a choice to not to give up his authorization privileges up to $250,000, but he didn't fight it. And again, just like with that $4,500 check, what was his option? He could be like, “No, no, no. I think it's very important that I keep my completely arbitrary ability to authorize checks up to a quarter million dollars. Don't take that away from me. That'll be horrible for the company.”

That would have been a huge red flag. So, instead, he just had to roll with it. So that alone, I think, started moving him to where he was stealing less money in 2007 already. But as we said, the gig was up in 2007, anyways.

[00:46:52] How did this come to an end?

Greg: And what happened there was Nathan Mueller, he divorced his wife to protect her from this whole thing. So, he was now a divorcee, but the divorce happened in 2006, and he and his coworkers had been working together at least since 2000, maybe longer, if they were also coworkers at ReliaStar before it got acquired by ING.

And so, one of his coworkers, one of the people that he shared the passwords and logins with, over the course of time, this coworker, she had become good friends with Mrs. Mueller and the divorce happened, but this coworker still was friends with Nathan's ex-wife. And so, the coworker and the ex-wife went to lunch at Panera bread in August of 2007.

And at that lunch at Panera Bread- which is very specific that Nathan Mueller recalled that this lunch had occurred at this specific sandwich shop- but at that fateful lunch, the ex-wife sounds like just offhandedly was like, “Yeah, you know what? I always kinda thought it was bullshit the way he said that he won high jackpot slot machines regularly.”

The way the story sounds is like, “Yeah, I think he was- that high jackpot slot machine winning things was bullshit. Oh, and this Turkey is really good. How’s the turkey in your sandwich?”

[00:48:31] Coworker ran a report of checks she had authorized and saw a ton she didn't recognize

Greg: So, the coworker, it stuck in her- that comment of the wife not believing the lucky at slot machines story, that started just boring into her brain. And so, after that lunch, the coworker went back to the office and just ran a report of every check that she had authorized in 2007.

And she saw all these checks to ACE Business Consulting come up and she's like, “I don't know what ACE Business Consulting is. And I've never authorized a single goddamn check to ACE Business Consulting in my whole goddamn life.” So then, she went to the boss, she gave that information to the boss, and the boss was then going-

[00:49:12] Boss asks Nathan for vouchers for all these checks

Greg: “Hey, Nathan, I need the vouchers for every single one of these checks that was made to ACE, and Nathan was like, Hey, yeah, totally. That sounds like a big deal. So, I will 100 percent get that to you, but you know what, it's actually going to take me a couple of days to pull that together. So, how about instead-” ‘cause the boss was like, “By Friday, this report needs to be on my desk.”

He's like, “Yeah, I totally get it, but give me the weekend. I'll have it to you by Monday.” And then on Monday, he, 100 percent did not have the vouchers for the checks to ACE Business Consulting. So, he goes into this meeting, and it's not a fun meeting- clearly, not a fun meeting for Nathan Mueller. And he says in his own recounting of the story, he says that that meeting ended when he literally ran out of the office.

Caleb: I mean, it really is what I was just thinking about while you were recounting this whole thing, falling apart is just how fast it happened. It basically all happened within a couple hours of a pleasant lunch. A pleasant lunch at Panera Bread. And in the hour after that pleasant lunch, the jig was up. It was all over.

Greg: Exactly. Yep. Yep.

Caleb: Just [CROSSTALK].

Greg: And then- and so, the boss asks for the vouchers to be prepared for the ACE payments by Friday, Nathan asks for an extension till Monday, he ran out of the meeting on Monday, and on Tuesday, the authorities showed up at his door, and it was over, over at that point.

[00:51:06] Mueller’s prison sentence

Greg: The other thing that's interesting here is that Mueller was sentenced to 96 months in jail, of which he only served 68 months. The fraud lasted about 50 months, and he was in jail for only a year and a half longer than the duration of his entire fraud scheme.

So, again, we know- and I was unable to find what his actual civil penalty or what he was required to pay back to ING. But what we've seen from similar frauds is if he stole $8 million, he's required to at least pay back the $8 million that he stole. So, if you have $8 million minus the 860 that they got from his assets, he still has $7 million that he’s got to pay back to ING. So, he's basically not making any money for the rest of his life because of this fraud.

So, that's the story of Nathan Mueller. Any final thoughts before we go to our break, and come back and talk about the lessons that we learned from this? Any observations you got, Caleb?

[00:52:17] Not a complicated fraud scheme

Caleb: I think the only one observation that I have is, like other cases that we've talked about is that this wasn't complicated. This wasn't something that required a vast conspiracy. It didn't require him to be a wizard of manipulating financial records, or other kinds of chicanery.

It was really just a glitch in the system that he was able to exploit, and was able to go on because of- again, because of glitches in the systems, it went undetected for quite a while. And that seems pretty consistent across a lot of the things that we've talked about.

Greg: And so, with that, we're going to look at, in terms of the simplicity, in terms of the glitches, we're gonna look at those glitches. We're going to look at the simplicity. We're going to see what we learned, and how possibly this could have been detected, or even prevented from happening, when we come back from this next break.

[00:53:18] Thank you to our sponsor, Avalara

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So now, is the time in our podcast where we look through what we just talked about. We look through the story, and we try to say, what did we learn today from all of this?

[00:54:17] The Fraud Triangle: Opportunity

Greg: So, we all know the theory of the fraud triangle, that you have to have opportunity, pressure, and rationalization. Those three things need to be present in order for a fraud to be committed. One of the big things that was here was this opportunity. And like we said, Nathan Mueller realized that he could steal just tons of money from ING.

And he didn't do anything about it for a year, but he was just- like we said, he said that he was tempted every single day for that year. The easiest way for this to have been solved is if Nathan Mueller had just been like, “Hey guys, this sucks being tempted like this.”

Maybe he doesn't say that part, maybe he says that in his head, but instead, he goes to his supervisors, and he says, “Hey, did you guys know that I was given authority to authorize checks up to $250,000 a year? Maybe that shouldn't be the case. And we need to figure out how we can still do our jobs, but not have to know each other's passwords.”

So, he could have- he basically could have turned himself in before he did anything wrong. And then A, he would have, should have been relieved that he's no longer got this weird temptation that's held around his neck. But like I said, you can phrase that in a way that's not quite like, “Hey, I'm a psychopath and I want to take all your money. Stop me before I do, guys.”

Caleb: Your posit that- can I say it that way? Your posit?

Greg: Yeah.

Caleb: You posit that transparency is probably the best antidote for fraud. I think that's exactly right. I just- I don't- if you know that you're being watched, or that you're being monitored, if there's a system of monitors in place, or if there's a systems of transparency in place, that seems to be the way that that will- it isn't like turning on the lights and then seeing all the cockroaches.

The cockroaches will just never show up, because you've created an environment that is basically, can be seen at all times. And I think that's the most effective way to go.

Greg: Yeah. In terms of ethics, if you're ever put in an ethical situation where you go, “I don't know what the right choice is to do here,” the first thing you need to do is talk to everybody about what the problem is. And maybe, talk to your manager, just be transparent about it. And that's from small things to big things. It gets you out of any ethical dilemma.

And obviously, the more you can create transparency in your company, and even the appearance of transparency in your company, that's going to help reduce fraud. But let's get past transparency.

[00:57:01] Red flags

Greg: Let's talk about red flags. ‘Cause that's always something I love to look at with these cases, is what are the red flags that were exhibited by the perpetrators? And in this- well, and Caleb, without looking- maybe it's too late to ask you this- do you know what the biggest red flag is? Biggest behavioral red flag that's exhibited by people who perpetrate frauds.

Caleb: Oh, yeah. My guess is living beyond their means.

Greg: Absolutely right. That's it. This very- a highfalutin lifestyle, or at least a lifestyle that can't be justified by the money that they make at their day job. That's the biggest red flag. And that clearly, was the case with Nathan Mueller here. That's why he had to start talking about winning these jackpots on these slot machines.

42 percent of fraudsters exhibit the red flag of living beyond their means. That clearly was the case that's here. If you're trying to figure out who's stealing money, or if you're worried that someone is, a lot of times, just go, “Who's spending a lot more money than they can really- than they would really have at this job?” That's the first question.

Another red flag that comes up in the literature- specifically, this comes from The Marquet Report on Embezzlement, which unfortunately, this guy, Chris Marquet, he had a really cool podcast called Fraud Talk that he stopped doing somewhere around 2013, 2014. And I'm glad he's gone because we don't need that kind of competition in the podcast market with fraud podcasts, Chris. So, thanks for giving up and for being a quitter.

But he also- every year, for many years, he produced this report called The Marquet Report on embezzlement. And in that, he reported that 33 percent of embezzlement cases, a red flag for the perpetrator is that they had gambling problems, to the point where it's like if you know that- if you're worried that somebody’s stealing money from your company, but you don't know who it is, start figuring out who likes to gamble and that's the guy.

It's not the butler, it's the gambler who did it.

[00:59:19] Financial difficulties

Greg: Another one of the biggest red flags- actually, this is the second biggest red flag that they have is financial difficulties. But again, what's weird is that I think Nathan Mueller's financial- they were perceived financial difficulties. I don't think they were real financial difficulties. Again, just based on his income, compared to the median income. Do you think-

Caleb: Yeah, I don't think living beyond your means is so much financial difficulties as it is the American way, Greg.

Greg: Yeah. No, that's a great thing, ‘cause it almost feels like, okay, if only 20 percent of fraudsters are experiencing financial difficulties, then the other 74 percent have a budget that they live by every month, and are working diligently to reduce their consumer debt, and they're investing well, and they've got a healthy 401k. [CROSSTALK].

Caleb: Wildly successful in every facet of their life, except the fraud. I mean, it just doesn’t-

Greg: Right. They’re great personal finance money manager, and that really gets the next one.

[01:00:22] Divorce and family problems

Greg: So, another red flag is divorce and family problems. 12 percent of fraudsters have- there's divorce or family problems is one of the red flags. He, obviously, got a divorce partway through his fraud.

But I do think it's the same thing where it's like, “Oh, so 88 percent of fraudsters don't have any family problems?” So, 88 percent of them just have this perfect, idyllic home life, but they're still stealing all this money. So, it is- I think for both of those red flags, it's excessive financial difficulties, and excessive family problems.

Those sorts of things are what we're talking about. And 9 percent of fraudsters exhibit the red flag of addiction problems. And that is one thing that Nathan Mueller definitely had. It even says that when he was in prison, he went through addiction treatment for alcoholism. So, he definitely was experiencing that red flag, was a given.

So, I'd say the two that were blatant was living beyond your means, and alcohol problems. The other ones are like, yeah, those might've been there, but they weren't at least blaring red flags.

Caleb: Yup.

[01:01:31] Nathan Mueller now gives fraud speeches and lectures

Greg: The next thing that I want to dive into with you about lessons learned from this whole thing. It's more- maybe this isn't really lessons learned. This is opinions that we got. And it's this that- so, you can find Nathan Mueller on LinkedIn, which I did, and which his LinkedIn- a link to his LinkedIn page is in the show notes of this podcast.

And it says on his LinkedIn page that he is now a ‘ethics and fraud speaker,’ which is actually how he got on my radar, because he gave a presentation to the AICPA and the AICPA took his- basically, did a transcript of his talk, and put that in the Journal of Accountancy. Also, a link to that in the show notes.

But now, his money- well, and he has a company called Integrative Ethics, LLC. And that's how he earns a living.

[01:02:26] Should fraudsters be able to profit off of their story?

Greg: And that's the question I've got for you. Is it okay for people like Nathan Mueller, who perpetrated these huge frauds to still actually be profiting from their crimes, just in a different way? Is that- what are your thoughts about that? To me, it doesn't feel good that these guys are- they're making money telling the story of how they stole a lot of money. And that's now a profitable business for them.

Caleb: Yeah. And I guess- I think I see your point, but I think the way I think about it is there's a couple different things. Number one, this is America, and America loves a lot of things. They definitely love it when people at the top come crumbling down. They do love vengeance and justice, and so- but they also love a-

Greg: They love-

Caleb: What?

Greg: They love pickup trucks.

Caleb: Yup, they love pickup trucks, but they also love a good comeback. And so, I think in the cases of guys like that, I think America is definitely one of those places where second chances happen all the time. And I think when people pay their debts to society, I think they absolutely do deserve second chances.

Greg: All right. The fact that they profit off of it doesn't feel good to me. Just doesn't feel good. And really, a lot of what we're talking about with justice is, does it feel like justice was served? And to me, no, if you're now making- if he's living in a nice house from- I mean, even if he has to pay a lot of that money back to ING, if his cut of what he makes, if his percentage of that gives him in a nice house, with a nice car, that bugs me.

Like you said, the second stance and the- second chance, and a comeback story, I 100 percent am cool with that. But for some reason, I want Nathan Mueller's comeback story to be that he opened a bicycle shop, and he's just running one hell of a legit bicycle shop. Now, I don't want it to be that he's writing a book about how I did it. [CROSSTALK].

Caleb: I think your points are valid. And I think it depends on context, and nuance, and all those things that people really don't care about. They do want- they just do want justice, whatever flavor of justice they like.

Greg: Exactly. Yup.

[01:04:41] Was justice served?

Greg: So, another- just to keep beating the justice dead horse, so, ING is not going to get back most of the $8 million that was stolen by Nathan Mueller. And he was in prison for about five and a half years, when his fraud covered for years.

Do you feel like justice was served? Because we always see that these kinds of crimes are- that people generally get let off very easily. Do you feel like he was punished severely enough for his crime? What’s your opinion on that?

Caleb: I mean, to spend over five years in prison for a nonviolent crime, it's hard for me to argue that he deserved to be in jail longer than that. I guess- I mean, the question that I would have for someone who disagrees with that is like, “Well, what's a sufficient sentence for somebody who commits a nonviolent crime of that nature?”

I don't know. I just- that's what I come back to on a lot of these things. And I guess- maybe, I don't know. This is maybe not as strong of an argument, but a corporation like ING, the size of it is, the resources they have, $8 million is nothing to a company like that.

It's a very different circumstance than say, the circumstances in Dixon, where- in Dixon, Illinois, on a previous episode that we talked about, where the money that was taken by that perpetrator, Rita Cranwell, that money really was taken from the citizens of Dixon. It affected the quality of life in that city. It affected the infrastructure of that city.

You could see the damage that was being done by that crime. It's much more difficult- for me, at least. Somebody smarter than me could probably explain as well, “This is the impact that that had.” You know, when you have impact statements at sentencings, it's like, is the general counsel of ING going to walk in there and give an impact statement about a corporation, and expect people to shed tears?

I just don't think so. And so, I guess, to bring it all home, for someone, for a first-time offender- probably somebody who had no more than a traffic ticket before, and somewhat, to spend over five years in prison for a nonviolent crime, that seems like justice.

It may not satisfy everyone, but I think a lot of people would say, I mean, “That's five years of his life that he will never get back, and his life is forever altered after that.” And so, I don't know. It's hard for me to argue that he deserved to be punished more severely.

Greg: Yeah. And I think in terms of the prison sentence, I think that that's- I think five and a half years is fine, ‘cause I don't feel like he's necessarily a threat to society that needs to be locked away and kept away from everyone. So, five and a half years, just in terms of, “Hey, did you learn your lesson?” I think five and a half years does that.

The biggest thing that I think in terms of justice is just the assumption that this guy's wages are going to be a garnish to a very high degree, for the rest of his life. To me, that's justice; that's as much justice as we can get out of him.

Caleb: For sure.

Greg: So, I think I feel okay with that, even though some people might argue that this prison sentence was way too light for $8 million that he stole.

Caleb: Right. It's interesting because it brings something up for me that I had heard. The psychology, I think, of a white-collar criminal, you look at these circumstances, family trouble, financial troubles, things like that, and the stress that that puts on people.

And then they put themselves in the situation where they make really poor decisions, and they end up in trouble with- are those people criminals? And so, sometimes, the psychology of these things is interesting. It's just as diverse as the circumstances around the cases themselves.

Greg: Yeah, absolutely.

Caleb: And so, when I look at the story of this guy, it's just like, “Man, dude was stressed out.” We're going to get into the rationalization, I think here in a minute. And he was very unhappy with his career. He was very unhappy with his stage in life.

And you were saying earlier, it was like he seemed unhappy in his marriage, and he got a divorce, and it's just like- and so, he stole. And I'm just- and I can't help but feel sorry for somebody in a situation like that.

Greg: Right. Yeah, exactly. And tons of what we're doing- I mean, again, we're the armchair forensic accountants.

Caleb: Right. That’s right.

Greg: So, a lot of what we're doing is just going, “I bet you it was like this,” when we really have no clue. But I don't think it's a frivolous exercise to give our best guesses, based on A, experience, and B, the research that we're aware of that helps inform what is generally the cause of that. But that brings in- and a lot of what you just said really wraps us around to the rash.

We talked about opportunity. He had opportunity; he knew he could steal a bunch of money. He didn't do anything to close that opportunity gap. And he ended up stealing a bunch of money because of it. Nobody else closed it either.

[01:09:59] Lack of rationalization for his fraud

Greg: But one of the things that I think is really interesting about his story is actually, the lack of a discussion for what his rationalization was for his fraud. ‘Cause generally, when we're talking about rationalization for fraud, we're talking about how the perpetrator can take all that money, and still go, “Yeah, I deserved it,” or “Yeah, I'm still- it makes sense that I should have gotten this money.”

There was none of that here. And so, the idea that comes to my mind is, “Oh, he was just plain motivated by greed.” There's no right. He was just like, “Oh, no, I just did want money, and that's it.”

Caleb: I deserve more.

Greg: And so, with that- yeah. Or maybe not even that, because really, you get into a significant number of frauds are perpetrated by people who would be labeled by professionals as sociopaths, or even psychopaths, meaning that they just don't have the normal human emotions of guilt.

And so, they’re going, “Yeah, I took the money. So what? It was I could, and I did, and that's the end of the story.” But I also think that that's a cheap way out, is going, “Okay. We can't see a rationalization, so they must've been a sociopath.”

[01:11:22] The largest subset growth test

Greg: Caleb, one of the things that we saw with Nathan Mueller's fraud- and I talked about this earlier- is the geometric growth of what he stole. So, it started out- I guess, technically the first year was 2003, where he only stole the $88,000. But then 2004, he stole $1 million; 2005, he stole $2 million; 2006, he stole 4 million. So, literally, that's textbooks’ exponential growth.

And when we’re looking at detection of fraud, one of the things that's clear, that happens all the time- and again, for the fraudsters that get caught, this is what happens, is that they get bolder and bolder very quickly, to where they will just ramp up their operations to take tons and tons of money, where you do see this exponential growth.

And that's actually- it's not really a red flag, but it's something that you can actually test for in companies. And that the technical name of it is the largest subsets growth test. And really, all that means is you need to slice and dice your accounting records to look at different things, and to see what's growing a lot.

In this case, if they had done the- if they had performed the largest subsets growth tests on vendors, they could have found the ACE Business Consulting vendor as being a fraudulent account. Because what they would have done, you look at your vendor- all of your vendors, you look at them and you go, “Basically, who are we paying this year a whole lot more than they were paying last year?”

[01:13:04] Internal audits catch a ton of frauds

Greg: And the other thing to think about is, we're not just talking about external auditors. We're talking about internal auditors too. And internal auditors really, that's- I mean, one of the main places that frauds get sniffed out, besides tips. Internal audit is really one of the bigger sources for these frauds getting discovered.

And so, with that, if you're an internal audit, just think about this- about looking at vendors, year over year, and whoever blew up, whoever seems like they're making a lot more money, that's where you start asking some more questions, and you can maybe find it. So, I think that's a great- a real great practical thing that could have brought this one to light a lot earlier than it was.

Alright, Caleb. Well, I think that's a lot of the lessons. There was more lessons that we learned, but really, we could get into minutiae and super nerdiness if we pursued everything to the final degree of what's possibly a lesson learned from this case.

Caleb: I think we covered it. We've done the best we could- the best we can, Greg. We've done the best we can.

Greg: Okay, everybody, that's it for this episode. If you are tempted to steal from your company, just remember to turn yourself in before you do anything wrong. But make sure you get credit for it by saying that you found a material weakness in the internal controls of the company that you work for.

Also, the other big takeaway is, make sure you have lunch with your coworker’s ex-wife at Panera Bread. Panera Bread is widely recognized as the Batcave for fraud detection. Caleb, if people want to get ahold of you, how can they find you out there in internet land?

Caleb: Yeah, you can follow me on Twitter, @CNewquist, and LinkedIn. That's probably the two places I spend the most time. LinkedIn, it's my full name, Caleb Newquist. What about you, Greg? Where do you hang out on the webs?

Greg: Best two places are the same places as you said. Twitter, I'm @GregKyte, and LinkedIn, I am Greg Kyte, CPA. So, find me at both those places. Also, if you want a reasonably clever cartoon from time to time, I publish my cartoons on those two outlets as well. Caleb, how about you read this out?

Caleb: Oh My Fraud is written by Caleb Newquist and Greg Kyte. Sound design, editing, and mixing by Blake Oliver. Be sure to subscribe to the show on Apple podcasts, Google podcasts, Spotify, or wherever you listen. Join us next time for more average swindlers and scams from stories that will make you say, Oh, My-

Greg: Fraud!

Blake: Thanks for listening. I hope you enjoyed this episode, and that you learned something new. And if you did, wouldn't it be nice to get some CPE credit for it? Well, I've got great news. My new app, Earmark CPE offers free NASBA-approved CPE credits for listening to podcasts, including this one. Visit earmarkcpe.com to download the app, take a short quiz, and get your CPE certificate. That's earmarkcpe.com.