Government fraud: a $6.7 million scheme

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fraud, government accounting, schemeBy now you are probably familiar with Rita Crundwell, the City Comptroller who embezzled more than $53 million over a 20-year period. If not, click here. That story seems to still get a lot of attention as it is shocking how she was able to get away with so much for so long; however, there are still other government fraud stories out there.

Take for instance Peter Bang, the Chief Operating Officer (COO) for the Montgomery County Department of Economic Development. While he had the appearance of being an ideal employee, behind the scenes he was embezzling more than $6.7 million in county funds over the course of six years.

Controls and programs to minimize fraud

The fraud began in 2010 when the County entered into an agreement with the Chungcheongbuk-Do province of South Korea to invest $2 million into a business incubator fund. Business incubators are programs designed to help small businesses in the area grow. That same year, Bang incorporated a company called Chungbuk Incubator Fund LLC to give the impression it was related to the province, as well as bank accounts for the fake entity linked to his home address.

Bang knew that as COO he oversaw the budgets for these incubators and had the authority to not only request disbursement for the program, but also the authority to approve and direct where the disbursement should be sent with little oversight. Over the next six years, he created and authorized $6,705,669 directed to the fraudulent company he created and controlled.

What did he do with all his ill-gotten gains? Gambled. Bang would bring five- and six-digit cashier’s checks to the casino and would refuse to disclose the source of the funds. The casinos reported these irregularities to the IRS and they began to review Bang’s activity including bank deposits, tax returns and his casino activity – noting it just didn’t add up.

Understanding audit risk assessment procedures

They got in touch with the County and began a months-long investigation into Bang’s activity including all documents related to the incubator fund, the payments to his fictitious company and observing his computer remotely without his knowledge. Finally, his house of cards fell, and the investigators had what they needed to make the arrest. Bang was sentenced on February 22, 2019 to four years in prison, three years of probation and he must pay back what he took.

Andrew Gill, CPA