Two House Corporation Officers Plead Guilty to Fraud

Tim Burke, Manley Burke, tburke@manleyburke.com

Several recent embezzlements by officers in Greek house corporations have underscored the need for appropriate financial controls.  Press releases by the United States Justice Department announcing two recent guilty pleas make clear the danger of failing to maintain such controls.

On June 2, 2016, the United States Attorney’s Office for the Southern District of Iowa issued a press release stating:

“On June 2, 2016, Andrea G. Baker waived indictment and pleaded guilty to one count of mail fraud, announced Acting United States Attorney Kevin E. VanderSheil.  Baker, age 50, admitted to engaging in a scheme to defraud the Ames Chi Omega Alumnae Association in Ames, Iowa….  Baker admitted she used her position as Treasurer to obtain association funds for her own benefit.  As part of the scheme, Baker mailed checks from the Association’s account to pay for personal credit card statements.  Baker also deposited Association funds into a personal bank account and obtained cash from the Association for her personal use.  Baker acted without the Association’s permission or knowledge, and made false entries and omissions in the Association’s financial records to conceal her use of funds.  Baker admitted she received and attempted to receive a total of at least $954,410.00 from the Association from 2000 – 2014.

“Baker faces a statutory sentence of up to twenty (20) years in prison, a fine of up to $250,000.00 and a term of up to three (3) years of supervised release to follow any term of imprisonment….”

On July 13, 2016, the United States Attorney’s Office for the Northern District of Alabama issued a similar release, with the added twist that the perpetrator was an attorney, in addition to being a house corporation officer.  That release said, in part:

“Jennifer Elizabeth Meehan, 39, pleaded guilty to bank fraud before U.S. District Judge Madeline H. Haikala.  As part of the plea agreement with the government, Meehan also agreed to forfeit, as proceeds of illegal activity, $234,648.00 provided to the government in April, and to pay additional restitution of $34,815.00 to Greek Resource Services.  In exchange, the government agreed to drop seven other fraud and money laundering counts brought against Meehan in the 2015 indictment.  The government also agreed to recommend a 20-month prison sentence.

“Meehan, a former member of Gamma Phi Beta at Alabama, was acting in her position as President of the House Corporation Board of the Epsilon Lambda Chapter of Gamma Phi Beta Sorority in an unpaid, volunteer capacity when she carried out the fraud.

“According to Meehan’s plea agreement, Gamma Phi Beta was building a $14 million sorority house and Meehan was responsible for coordinating and purchasing all furniture and associated implements for the house between September 2013 and March 2015.

“Meehan executed a bank fraud scheme to illegally obtain money from First Citizens Bank & Trust Company and the Bank of Tuscaloosa, according to her plea agreement.  Gamma Phi Beta Sorority’s account was at the Bank of Tuscaloosa.  Meehan opened an account at First Citizens Bank under a fraudulent business name.

“In September and November of 2014, Meehan submitted fraudulent furniture invoices totaling $375,000.00 to Greek Resources Services, a contract company that handles the finances for fraternities and sororities at UA.  GRS drew money from Gamma Phi Beta’s account at Bank of Tuscaloosa and gave Meehan two checks totaling $375,000.00.  She deposited that money into the newly opened First Citizens account.

“In January 2015, Meehan entered a First Citizens Bank & Trust branch in Anderson, S.C. and wired $175,000.00 from the fraudulent business account into her personal business account at Bank of America for her personal use, according to her plea agreement.”

Both Meehan and Baker are scheduled for sentencing in October.

Traditionally, insurance to cover losses such as these has been relatively inexpensive, but losses like these will drive the cost up very quickly, and the increase won’t be small.

Cindy Stellhorn of MJ Insurance Sorority Division, who has long worked with many National Panhellenic Conference members, urges the following basic risk management steps be taken in order to prevent or reduce the likelihood of  such embezzlements:

• The financial management of a house corporation must always have the oversight of a minimum of two board members.
• If the budget process is done in the thorough and appropriate manner then many of the financial decisions will have already been made by the “board,” thus reducing an administrative burden throughout the year.
• Any new “account” must have dual control from new bank accounts to new vendor accounts.
• The oversight of the financial management cannot be surrendered to a third party such as an accounting firm or bank.
• Paper trail of the decision making is critical to show the decision-making process of financial management of the operation.

In cases like these, the entity whose funds were stolen does have a claim against the perpetrator.  But whether or not the wrongdoer has any of the funds left is often an entirely different question.  Even a judgment for the entire amount of the loss is not worth much if there are no assets upon which to enforce that judgment.