Is it possible to convert large pieces of excess property to cash–all without anyone knowing? Apparently yes.
Two men, Alfred Ketzler (the city manager) and Alfred Fabian, were found guilty of wire fraud and theft from the city of Tanana, Alaska.
So what happened?
First, the Department of Justice stated “Ketzler would acquire surplus federal property that was stored at several different locations without notifying the mayor of Tanana or the city council for the city of Tanana of the federal excess and surplus property obtained on behalf of the city of Tanana.”
The Department of Justice went on to say “that Fabian, for his part, would transport federal excess and surplus property obtained on behalf of the city of Tanana to storage locations in and around Fairbanks, Alaska, including his own residence.”
Finally, the indictment stated that once the excess property was received, Ketzler would sell the equipment to individuals and businesses, telling them the property belonged to the City of Tanana. He asked that the checks be made out to him personally. The indictment continued by saying Ketzler would deposit the checks in his personal account and make payments to Fabian.
The indictment stated that the men received approximately $122,000 in illegal funds.
The property sold included:
A June 2014 Department of Justice press release stated:
Anchorage, Alaska – U.S. Attorney Karen L. Loeffler announced today that two Fairbanks men were sentenced on Friday, June 6, 2014, in federal court in Fairbanks after being found guilty of wire fraud and theft from a local government receiving federal funds.
Alfred Richard Ketzler, Jr., also known as “Bear” Ketzler, 57, of Fairbanks, Alaska, was sentenced to 16 months in prison to be followed by two years of supervised release by Chief U.S. District Court Judge Ralph R. Beistline. Ketzler pled guilty in March 2014. Ketzler has already paid restitution to the City of Tanana in the amount of $116,500.
Alfred McQuestion Fabian, 62, of Fairbanks, Alaska, was sentenced to six months in prison to be followed by two years of supervised release by Chief U.S. District Court Judge Ralph R. Beistline. Fabian pled guilty in March 2014.
The city may have had appropriate inventory controls (the DOJ press releases did not say). Most noteworthy, this case appears to reflect a circumvention of controls. The city manager had the power and ability to consummate transactions that were (apparently) not recorded on the city’s records. The indictment states that Ketzler did not provide the city with appropriate notice of the receipt and sale of the excess property. Also the payments received were not recorded on the city’s books.
Organizations should do all they can in the hiring process to bring people in that are honest. How? Background checks and the calling of references are critical.
It is imperative that all property be included in inventory—as soon as title transfers to the city. And, obviously, all payments should be made to the city (in this case) and not to individuals. A receipt should be issued to the payor that details the reason for the payment, the amount, and who made it.
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Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.
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