A Case of Procurement Card Fraud

1. A Case ofProcurement Card Fraud Presentation at the 2009 VLGAA Spring Conference May 21, 2009 Williamsburg, Virginia

2. What happened? • On June 16, 2008, John Michael Killinger, 34, of Virginia Beach was sentenced on one (1) count of Embezzlement by Virginia Beach Circuit Court Judge H. Thomas Padrick Jr. • Killinger was ordered to serve 15 years in the Virginia Department of Corrections, with all but 12 months suspended • Conditioned on payment of restitution in the amount of $200,000 • Placed on supervised probation for an indeterminate amount of time • Defendant is to have no contact with any employee, be on the property or attend any events connected with the facility.

3. What happened? • The defendant entered a guilty plea on April 22, 2008. Had this matter gone to trial, the Commonwealth’s evidence would have proven that between February 2003 and November 2007, Killinger used his position as Operations and Sales Supervisor to purchase items for resale and personal use. • During this time, he used a Foundation issued credit card to purchase electronics, clothes, meals and other personal items. • The defendant altered invoices from vendors when accounting for funds he spent to reflect business-related purchases. • The defendant confessed that he sold some items on Craig’s List and used the money to pay for his home, boat and telephone bills. • Killinger admitted, he lived beyond his means. • The defendant embezzled a total of $176,845.01 from the Foundation. The court allowed additional restitution to cover costs incurred related to the discovery and investigation of this matter.

4. Procurement Card Policies and Procedures • Signed cardholder agreements • Individual and aggregate monthly spending limits • “Blue” form required for authorization of purchases over certain amounts • Monthly Transaction Log and original receipts required to be submitted along with packing slips to facility’s Accounting Office • Receipts and transaction logs are reconciled to monthly statements by Account Clerk • Purchases posted to GL based on account coding and/or description provided by cardholder

5. Perpetrator • Employed with the City for nine years • Began as a volunteer • Independently wealthy with condo at the oceanfront, new cars and a boat • Wealth generated by “deal” with a technology company after college • Applied for and accepted part-time position through a temp agency to “help out” • Applied for and accepted full-time position as Operations and Sales Manager (making approximately $43K) as a “favor” in 2000

6. Perpetrator • Responsibilities as Operations and Sales Supervisor (some assigned some assumed) • Admissions (and advance/group sales) • Facilities Management (including reservations, event setup and logistics, custodial services and maintenance) • Guest Services • Security • Member of Management Team • Internal network administrator and IT Liaison • Inventory • Communications (cell phones and radios) • Overseeing/ordering equipment for both City and Foundation sponsored renovations • He was the “Go to Guy”!

7. Discovery • Account Clerk responsible for monthly statement reconciliations retired • Facility Controller discovered a substantial number of missing receipts and/or unsubstantiated charges • Under closer scrutiny, she also found some questionable items (i.e., duplicate charges related to grants and personal travel expenses) • When confronted by the Controller (and the Director), the Supervisor submitted receipts and a “Credit Memo” for the grant charges, saying he had returned the duplicate items and had applied the credit to a later purchase • The Supervisor’s card was inactivated until all receipts and supporting documentation were received

8. Discovery • The next day, having had “some time to think about it”, the Supervisor tendered his resignation effective in 30 days stating that he could not work under conditions where trust was not present.

9. Discovery • The Controller decided to contact the vendor

10. Discovery • And, the auditors!

11. Confirmation

12. Investigation • Reviewed supporting information for all charges on Supervisor’s card (starting with current fiscal year and working backward through 2003) • Prepared a schedule of questionable charges • Contacted bank and main vendors to confirm purchases • Conducted an extensive inventory of all electronic equipment • Compared purchases to inventory • Interviewed staff, including Supervisor • VERY COLLABORATIVE AND LABOR INTENSIVE EFFORT(especially for facility staff) involving Audit Services, Police, City Attorney’s Office and the Commonwealth Attorney’s Office

13. What he said he bought! • PCs, printers and accessories • Network routers • Hubs • Cable • Cable • And, more cable • Digital cameras • Security camera mounting equipment • Etc.

14. What he really bought! • Video cameras and accessories • Flat screen TVs • iMacs and Macbooks • Apple software and accessories • PCs, printers and other related items • iPods and iPod Shuffles • XBox/Playstation and games • Cellular/smart phones • GPS system and other marine items • Personal travel expenses • Tuxedo, cuff links, Topsiders

15. Results • $175,846.01 in fraudulent charges!

16. Other interesting tidbits… • Because of his “contacts” at Apple, he was able to offer other employees a substantial discount on Macbooks. He’ll order it, you pay him. He even had it delivered to work! • Also, because of his contacts, he was able to provide “free” giveaways/door prizes (such as iPod Shuffles) at staff meetings and fundraising events • He flew to California (twice) to meet with his contacts, on the Foundation’s dime.

17. Lessons Learned • Some vendors are more cooperative than others! • When inquiring as to a questionable charge DO NOT mention the word “fraud”! • The bank card fraud/contesting processes can be agonizingly slow! • Discourage use of “personal” accounts for internet purchases. • People tasked with overseeing reconciliations need to be: • Curious and inquisitive by nature • Diligent at following up discrepancies • Not easily intimidated by position or personality • Able to stand their ground • Packing Slips are important!

18. Questions? Contact Information Gretchen Hudome Deputy City Auditor City of Virginia Beach 2401 Courthouse Drive Virginia Beach, VA 23456 (757) 385.5873 (757) 385.5875 (FAX) Email: ghudome@vbgov.com