Audit Alert – Cash Counts and Segregation of Duties – Risk Management reminder from TraceRisk, LLC
Wow!! 3 Arkansas bank workers get prison time; group admitted conspiring to steal almost $4Million in cash
The article below makes the case for duties segregation and periodic surprise cash counts. You should never let your guard down or set aside time-tested best practices, even with cash controls.
Three veteran bank officers were sentenced Thursday and Friday to nearly five years in federal prison for jointly siphoning more than $3.9 million over 10 years from the vault they oversaw at the venerable First National Bank of Lawrence County in Walnut Ridge.
Teller Brenda Montgomery, 57; head teller Peggy Sutton, 61; and head cashier Cindy Tate, 57, admitted in May in a Little Rock federal courtroom that they had used their positions to secret away large amounts of cash and thwart auditors from discovering the theft.
Montgomery worked at the bank for 35 years, Sutton for 30 years and Tate for 37 years. All grew up in and near Walnut Ridge with the bank president, Milton Smith, and his elder sisters, Virginia Smith Fields, now of Austin, Texas, and Elizabeth Smith, now of San Antonio.
All three siblings, and several shareholders and bank employees, showed up Thursday and Friday in the Little Rock courtroom of U.S. District Judge Kristine Baker to deliver scathing victim impact statements aimed at persuading the judge to put the women behind bars for as long as possible.
However, the women and their attorneys had jointly negotiated agreements in May, when they waived their right to a grand jury review and pleaded guilty before the judge, to each repay a third of the total — $1,317,000 — and serve a sentence of between 41 and 57 months in prison.
While the victims complained that the agreed-upon penalty range amounted to a “federally sponsored vacation,” Assistant U.S. Attorney Angela Jegley emphasized that a lot of thought and discussion went into the agreement, which high-level officials in her office felt was in the best interests of the victims and the public.
She pointed out that the women hired attorneys immediately after the bank caught them in a surprise audit, and it was the defense attorneys, led by Sutton’s attorney, Tim Dudley of Little Rock, who alerted the U.S. attorney’s office to the crimes in an effort to head off steep penalties before the women were even charged.
That, Jegley told the courtroom, saved the government the time, effort and expense of a lengthy investigation, pretrial proceedings and a trial.
Jegley said that although defense attorneys asked to have the women come in and give statements immediately, federal prosecutors chose to wait until an ongoing forensic audit was complete, to see whether the women’s version of events matched the findings — and they did, leading prosecutors to believe the women were truthful.
The agreements, which Baker ultimately accepted, resulted in Montgomery and Tate receiving sentences of 57 months, while Sutton received 51 months. There is a possibility that the 57-month sentences will be reduced to 51 months.
Montgomery and Tate had already been sentenced when Sutton’s attorney, Dudley, pointed out a discrepancy between calculations in the original agreement and the pre-sentence report that followed, which had the effect of bumping the women into a slightly higher sentencing category. Jegley conceded that Dudley was correct, and told the judge she would discuss the discrepancy with the two other defense attorneys, Bill James for Montgomery and Jeff Rosenzweig for Tate, and “figure out where we go from here.”
Each woman pleaded guilty to a single charge of bank-fraud conspiracy, which is punishable under federal statutes by up to 30 years in prison and a fine of up to $1 million.
Without their plea agreements, federal sentencing guidelines would have recommended 11 to 14 years in prison for each of the women, considering the amount of money taken, each woman’s lack of a criminal record, the number of victims, the sophistication of the crime and the fact that each woman carried out the crime by violating a position of trust and authority.
The guidelines aren’t mandatory, but judges must consider them when imposing sentences, as part of an effort to standardize punishment for federal crimes across the country. The federal system doesn’t offer parole.
The forensic audit determined that from sometime in 2005 through April 2015, when the fraud was discovered, the total amount stolen was $3,953,025.
Jegley said the women’s duties collectively put them in charge of reconciling cash in the teller drawer and the vault, and they conspired to take cash from the vault while coordinating their records to hide the thefts. She said the bank always gave Tate advance notice of internal audits, and before the auditors arrived, Tate would always arrange with the other two women to carry cash in from other branches to cover shortages in the vault. Once the audits were complete, the women returned the cash to the other branches.
Fields said the theft was discovered by an information technology employee who became suspicious of Tate’s refusal to let anyone else access the women’s records and began monitoring their emails. Fields said that when the employee became certain that a crime was going on, she alerted Smith, who called an audit firm the bank had never used and requested an immediate, surprise audit.
According to Fields, Smith then called Sutton and confronted her, and she immediately confessed, then tried to commit suicide by overdosing on pills. She led Smith to her co-conspirators, who Jegley said at first denied the allegations.
Fields, a prosecutor for the Texas Department of Licensing and Regulation, read a lengthy statement aloud in all three sentencing hearings criticizing the women for tarnishing the reputation of the bank that was established in 1919. Fields’ grandfather, Robert Smith Sr., bought a controlling interest in the bank in 1965, and her father, Robert Smith Jr., was the majority shareholder from 1967 until his death in 1994.
Her brother, Milton Smith, who became the bank president after their father’s death, said outside of court that private insurance covered $2.585 million of the $3.9 million theft, while the Federal Deposit Insurance Corporation protected all customers’ deposits. He acknowledged that civil litigation is under way, but declined to discuss it.
Smith told the judge that the bank’s 74 shareholders and roughly 60 employees at the time of the theft suffered financial losses that far exceed the $3.9 million figure, including dividends that weren’t paid to them, and the loss of future earnings such as raises, bonuses and stock options, as well as losses from the bank’s increased legal and accounting expenses.
“During his tenure at the bank, my grandfather never received a salary,” Fields told the judge from a courtroom lectern. “The founding philosophy of this institution was not to garner profits, but to serve with great loyalty and commitment our banking family, customers and the farming community.”
She said the defendants “engaged in a concerted effort to literally rob the graves” of her father and grandfather, resulting in “harm to the stellar business reputation and goodwill built by three generations of my family.”
Fields demanded the maximum penalty for all three women, saying they “attempted to destroy a long-standing organization relied upon by a small farming community for growth and greater opportunities.”
“I lost $60,000 in income,” Fields told the judge, adding, “My children’s opportunities, built on lifetimes of hard work, were lost” as a result of the theft.
Vicki Boothe, who was hired as a teller under Sutton in 2001, told the judge, “From the very first day on this job, she tried to bully me, intimidate me, embarrass me … to make me and our co-workers fear for our jobs.” She said she now knows that the “mental abuse” was a way for Sutton to divert attention away from her crime.
Each defendant apologized from the lectern, with a tearful Sutton — the only one of the three credited by family members for showing some remorse — noting that counseling has helped her trace her actions to a deep-seated lack of self-worth and self-love.
“All I ask for is prayer and healing for all those I hurt,” she said. “Maybe someday, if I can forgive myself, they can forgive me too.”
Baker ordered in-prison counseling for all three women, and told Sutton, “Only you can give yourself the self-worth you’re entitled to. I hope counseling continues to be a benefit to you.”
After the sentencing, Sutton collapsed in sobs in the courtroom.
All three women are scheduled to report to prison within 60 days.
Story by Linda Satter, Federal Courts Reporter