CASE STUDY ONE Case Study – Stage Seven 56. You now turn your…CASE STUDY ONE Case Study – Stage Seven 56. You now turn your attention to looking for direct evidence of Westerman and Lewis’s involvement in the theft and sale of the engines. You begin by trying to follow the money trail from the sale of the jet engines. You review your notes: Southern California transport was paid in cash, and the shipping companies were paid by wire transfers from Atlantic Aircraft Brokers, Ltd., from an account at Butterfield’s Bank, Hamilton, Bermuda. Butterfield’s declines to produce the account infomation, and the solicitors who incorporated Atlantic Aircraft Brokers decline to identify the owners. You are unable to locate any public information on Jet Air Services, and another pretext call reveals that the company has been disbanded. 57. Having failed to trace the funds from the point of payment, you decide to do full financial profiles on Westerman and Lewis. Nothing new turns up on Westerman. Regarding Lewis, you lear he is 59, with a high school education. He has no criminal record. Media checks were negative. 58. Lewis’ average compensation for the last five years was about $250,000 a year. Ten years ago, just before joining AI, he filed for personal bankruptcy. Previously he was a self employed real estate developer, before that he worked in the aircraft industry, and before that he was in the military where he was a helicopter and fixed wing aircraft mechanic. 59. In 1999 he married his third wife (a very attractive woman less than half his age), and in June, 2003 he and his wife purchased a $4.7 million seaside home in La Jolla. They put $1,900,000 down. He and his wife drive three new luxury vehicles, with a combined estimated value of more than $240,000. There is a $40,000 loan balance on one. 60. Court records showed that one of Lewis’ neighbors recently filed a complaint against him for being a public nuisance. You contact the neighbor and learn that Lewis was in the habit of singing show tunes at the top of his lungs while sunbathing nude at his pool. 61. The neighbor says Lewis and his wife completely renovated the home – a new wing, new marble baths, a new kitchen, and so on. The neighbor says his wife told him that Lewis’ wife said the renovations cost more than a million dollars. Calculations based on the building permit fees reflect, however, that the total cost was about $700,000. You contact the contractor and learn that CASE STUDY ONE Lewis paid him half in cash (in brown paper bags) and half in traveler’s checks. You contact the security department of the traveler’s check company and leam that the checks were charged to an account at Butterfield’s Bank in Bermuda. 62. You drive by the home and see the sign of a landscaping firm on the front yard. You call the company, say you would like to have similar work done at your house, and ask the cost. The landscaper says Lewis’ home was done for $85,000, and volunteers that he paid in cash. 63. Incorporation records reflect that Lewis’ wife, Astrid, incorporated Starlight Jewelers in May, 2002. Business directories and Dun & Bradstreet reflect that the company operates three retail outlets in Southern Califomia and reports annual sales of $6.4 million. The neighbor says that Lewis’ wife was unemployed before she opened the jewelry shops. 64. Lewis’ travel records reveal frequent business trips to Europe, Africa and the Middle East, including Turkey. Westerman accompanied him on many of the trips, for which Lewis often did not file an itinerary or claim any reimbursement. 65. Failing to get conclusive proof of Westerman’s involvement in the sale of the engine parts, you turn your attention to proving other misconduct by Westerman, You obtain statements from Sharp and Chung regarding Westerman’s false certifications of the repairs, which you corroborate through Inspection of several engines still on-site. Your database analysis of his parts and materials purchases identifies a supplier that repeatedly received purchase orders just under the $50,000 upper level review limit, and that consistently charged higher than market prices. The purchase orders contained audit clause rights, which you exercised, and found payments equaling 10% of the purchase order amounts to Wings of Eagles, QUESTIONS – STAGE SEVEN A. What else could you have done to prove Westerman and Lewis’s link to Jet Air Services? B. Next steps? CASE STUDY ONE Case Study – Stage Eight 65. You decide to confront Al Westerman. You tell him of the statements from Sharp and Chung, the results of your audit of the parts supplier, show him the photos of his meeting in Istanbul, and tell him his cause is hopeless. You suggest he do some good by cooperating. After some hesitation, Westerman agrees, saying he knew all along that this day would come. He tells the following story. 66. Several years ago, Lewis concocted a scheme to steal gold during the repair process and melt it into small ingots. He would then transport the gold, concealed in a special briefcase, to Europe and Africa, where he would use it to pay off employees of foreign airlines to get jet repair contracts. 67. The theft of gold required that silver be substituted in the re-braising process. Lewis insisted that the silver was adequate to meet the repair specifications, and Westerman was certain the substitution was not a factor in the recent crashes. 68. A couple of years ago, Lewis came up with the idea of designating serviceable engine parts, enough to assemble whole engines as scrap and to sell them in the third world. He established Jet Air Services and Atlantic Aircraft Brokers, Ltd. in Bermuda (outside the range of U.S. subpoenas) and leased a warehouse in Istanbul. There the parts could be re-assembled, if necessary, serial numbers changed, and false inspection certificates prepared. 69. Lewis preferred to sell to West African customers who paid in diamonds. He would transport these to the U.S., undeclared, and use them as inventory for his wife’s jewelry business. In Africa he would prepare and mail false invoices showing the sale of the diamonds at tow prices, guaranteeing her a paper profit to account for their lavish spending. 70. Westeman and a Maxwell Grant are shown as the owners on the Jet Air and Atlantic Broker’s corporate records, and are the signatories on the company’s accounts at Butterfield’s Bank and Credit Suisse in Geneva, Maxwell Grant is Mac Lewis. Westerman takes a salary of $10,000 a month, with the promise that he would eventually own one half the business. Lewis now takes all of the profits, well over a million dollars a year. 71. Westerman admits he often signed work completion certificates without actually inspecting the work. He says he was confident that his mechanics had done their jobs. CASE STUDY ONE 72. Westernan heard that Lewis “took care of the FAA inspectors. He heard Lewis spent a lot of money on sporting tickets and weekend travel for fishing and golfing trips, and thinks gave them cash on a regular basis. QUESTIONS – STAGE EIGHT A. List the contract and procurement fraud schemes that you have NOT yet encountered in this I isto case. B. Next steps?Business Accounting ACCY 6501
