Introduction to the case
A remarkable sum for fraud in Canada’s art industry
A Canadian heiress and her organization were defrauded over $22 million in the space of just 18 months. Heads up: it was an inside job.
Details of the fraud
Canadian artist, philanthropist, and businesswoman, Phoebe Greenberg, found herself and her esteemed arts and culture organization, The Phi Centre, at the heart of an unscrupulous occupational fraud scheme that bilked her out of $22 million.
A year earlier, in 2011, Greenberg hired Sandra Testa as office manager and executive assistant to herself and then-president of the Phi Centre, Penny Mancuso.
Responsible for attending to the professional needs of both women, Testa’s duties included managing their calendars, booking travel, and documenting and processing expenses.
Her role granted her access to several corporate credit cards and chequebooks, as well as Greenberg’s personal bank account.
Forensic investigators discovered that Testa had misappropriated millions between 2016 and 2017 to finance expenses like luxury jewelry, clothes and cars, priceless works of art, vacations on private jets, and gifts for her friends.
How did the fraudsters commit the crime?
Considering Greenberg’s active involvement in the activities of the Phi Centre, her personal and corporate expenses were closely linked. Therefore, a shareholder advance account was created to keep expenses separate. At the end of every month, the shareholder advance account was paid back from Greenberg’s personal bank account, and Testa’s responsibility was to identify the credit card transactions that are to be recorded in the shareholder advance account.
The accounting department didn't require supporting documentation for expenses charged to the account, nor did Greenberg or other accounting personnel need to review or authorize transactions.
With little to no controls for financial accountability in place, Testa used several methods to execute the fraudulent activities:
Conducting unauthorized purchases using cash withdrawals and cheques.
Improperly charging expenses to the organization and Greenberg's credit cards.
Paying off her and her associated parties’ credit cards without authorization.
She used at least 15 credit cards from four different financial institutions and four different banks and investment brokerage firms to commit her fraud schemes.
What was the outcome?
As it happens, this wasn’t the only time the Phi Centre and Greenberg fell victim to occupational fraud. Phi’s former president, Penny Mancuso, was also found to have embezzled funds—$5.2 million, in her case—from the organization between 2014 and 2017.
Phi Centre’s financial director, Michel Bérubé, had alerted Greenberg to irregularities in the accounting records, including an entry unveiling that Mancuso had spent $500,000 on clothes, bankrolled by Greenberg's expense account. Mancuso was subsequently fired, and Greenberg sued her for misappropriation of funds for a total of $5 million. The matter was settled out of court in June 2019.
This eye-opening discovery prompted Greenberg to take a closer look at her expense accounts. She hired private investigator to follow the money trail, which eventually led them to suspect Testa.
In July 2017, Greenberg fired Testa and enlisted forensic accountants to dig deeper into the allegations. The investigation found that between January 2016 and July 2017, Testa had misappropriated $10 million from Greenberg's accounts and $5 million from the Phi Centre’s corporate accounts.
In a judgment rendered on March 8, 2021, Testa was sentenced to pay $12.4 million in damages. Another lawsuit related to Testa’s fraudulent activity was previously settled in 2018 for an additional $7.5 million.
How could this have been prevented?
The Phi Centre’s accounting structure and audit processes had clear gaps and weak internal controls that made employee fraud harder to detect. The red flags of this case include:
- A lack of restrictions on Testa’s control over the shareholder advance account. For example, a $5,000 per transaction limit, beyond which a second-level authorization would be required, may have helped alert Greenberg to suspicious activity much sooner.
- An absence of requirements to provide supporting documentation for expenses charged to the shareholder advance account.
- No segregation of duties for the approval of payments.
This confluence of oversights created the perfect environment for Testa's actions to go undiscovered for over a year.
As we see from this case, the consequences of occupational fraud can be incredibly steep, but organizations are far from powerless. Here are key takeaways to prevent or detect similar fraud schemes:
A strong relationship with senior staff is an important factor in mitigating workplace fraud. Not only will this build trust, but it may help you identify motives for committing fraud—such as financial problems—by noticing changes in attitude.
Implement internal controls to segregate the creation, authorization, and reconciliation of payments and withdrawals—and review them regularly.
Require all expenses to have supporting documentation to justify the payments being made.
Ensure that all expenses are authorized by management before payments are made.
How BDO can help
Occupational fraud can have lasting, devastating effects on an organization, impacting businesses with financial losses, legal costs, and tarnished reputations. From responsive internal controls to targeted employee training, effective solutions go a long way in preventing and discovering vulnerabilities. Drawing on resources across accounting, audit, and forensic investigation, we can help your business identify and implement these solutions to reduce your risk of exposure to occupational fraud.
For more information about workplace fraud protection and detection for your organization, contact:
Footnotes:
*All amounts expressed in U.S. dollars unless otherwise stated.