You are a newly hired fraud examiner. You have been asked to write a preliminary report on the
scenario below.
The Dude Fraud Case
In his own words, Daniel Jones was “The Dude.” With his waist-long dreadlocks, part-time rock
band, and well-paid job managing a company’s online search directory—he seemed to have it
all. Originally from Germany, Jones, now age 32, earned his doctorate and taught at the
University of Munich before coming to the United States, where he started his career in
computers. In 1996, Jones started working with the company as a director of operations for U.S.-
Speech Engineering Service and Retrieval Technology—working on a new, closely guarded
search engine tied to the company’s .net concept.
The company allows employees to order an unlimited amount of software and hardware, at no
cost, for business purposes. Between December 2001 and November 2002, Jones ordered or used
his assistant and other employees (including a high school intern) to order nearly 1,700 pieces of
software which had very low cost but were worth a lot on the street. He then resold them for
reduced prices—reaping millions. When items with a cost of goods sold of more than $1,000 are
ordered, an e-mail is sent to the employee’s direct supervisor, who must click on an “Approve”
button before the order is filled. In no individual order was the cost of goods more than 1,000—
he made sure none of the orders required a supervisor’s approval. The loosely controlled internal
ordering system reflects the trust the company puts in its employees.
In June, FBI agents said they saw Jones exchanging a large box of software for cash in a
department store parking lot. The FBI contacted the company’s security and began monitoring
Jones’ bank accounts. Previously, one account with his bank had an average balance of
$2,159. In a short time, however, the average balance ballooned to $129,775. Another account at
another bank showed irregular deposits totalling $500,000—none of which appeared to be from
any legitimate income or other source.
Investigators also noted that Jones purchased a Ferrari F355 Berlinetta, a Jaguar XJ6, and traded
in lesser vehicles for a Hummer, a Mercedes 500SEL, and a Harley-Davidson motorcycle. He
also bought an $8,000 platinum diamond ring, a $2,230 wristwatch, and a $4,000 bracelet. “You
figured that I like big boy’s toys by looking at some of my pictures,” Jones wrote on his personal
Web page. “I just can’t resist.” The Dude’s Web page includes a camera for monitoring his cat
and photos of his yacht, cars, and other treasures. For a relatively low-level manager, it was an
impressive collection. But at his company, where teenage software engineers can earn more than
company directors, no one batted an eyelid.
A neighbour across the street from Jones said that he was clearly wealthy, but not flamboyant
with his money. He described Jones as an intelligent man who didn’t flaunt his education, would
loan neighbours tools, and was always friendly. The neighbour was surprised to hear the
accusations against someone he called his friend. All he knew about Jones was that he was a
good neighbour who loved cars. “He was very, very helpful. The few times I had problems with
my PC, he’d come and help straighten them out,” the neighbour said. “They are just ideal
neighbours. I feel terrible for him and his wife." Jones and his wife lived in a modest 1960s splitlevel home.
In 2001, he joined the city's Rotary Club, "where he seemed more outgoing and personable than
the stereotype techie," said a local jeweller and immediate past president of the club. He seemed
like what I would expect a genius software developer to be."
a) Determine if fraud was committed, and if so describe the symptoms of fraud that might be evident to a fellow employee.
b) Identify and describe using examples the elements of the Jones fraud.
c) In the scenario, Jones' employer has been putting more emphasis on controlling cost. With the slowing of overall technology spending, executives have ordered managers to closely monitor expenses and have given vice presidents greater responsibility for statements of financial positions. What positive or negative consequences might this pose to the company in future fraud prevention??
d) Describe the company’s fraud prevention programme and identify any improvements that might be necessary to prevent this type of fraud or at least discover it sooner.