“A former employee of Manhattan’s Memorial Sloan-Kettering Cancer Center pleaded guilty Tuesday to stealing more than $1.5 million[1] from the hospital in the form of printer toner.
Marque Gumbs, 33 years old, pleaded guilty to grand larceny and prosecutors are expected to recommend a far more lenient prison term than the up to 25 years he faced if convicted at trial.
He will be sentenced next month in state Supreme Court in Manhattan. The Wall Street Journal first detailed the allegations against Mr. Gumbs in December.
According to prosecutors, Mr. Gumbs was employed by Memorial Sloan-Kettering at its main outpatient campus on East 53rd Street as a receiving clerk who was responsible for ordering, receiving and stocking ink cartridges for the printers at the facility. In that role, he had password-protected access to a computer used to order the toner supplies from Office Depot.
Once the toner cartridges were ordered, Mr. Gumbs allegedly instructed drivers from Office Depot to call him and he would meet them in the street to accept the delivery before it reached the normal receiving area. None of the ink toner cartridges were compatible with any machines at the campus, prosecutors said.
Between September 2007 and August 2010, Mr. Gumbs ordered and diverted more than $1.5 million toner, prosecutors said. The proceeds were used to finance purchases from designer stores, travel and stays at expensive hotels and a 2011 BMW X6. He rented a $2,250 a month apartment at the Trump Plaza in New Rochelle.
His actual income from the hospital was $37,800 a year. A Sloan-Kettering spokeswoman said Mr. Gumbs had been employed there since 1999, but was fired after his arrest.
Mr. Gumbs will be sentenced on Aug. 8, when the Manhattan District Attorney’s office is expected to recommend 2½ to 7½ years in prison, in addition to the forfeiture of gains from the scheme. Mr. Gumbs would have faced between 8 1/3 and 25 years in prison if he was convicted at trial.”
Controls
Sloan-Kettering is a world renowned cancer institute. I’ve never been involved with Sloan-Kettering and I do not have any knowledge about its system of internal control within the Finance Office. However, based on my 37 years of audit experience, I suspect the Finance Office operates in a traditional manner with a number of clerks involved in the paper pushing that gets a transaction from the request of the operating units to the check to the vendor.
In the traditional finance office, purchasing involves the following documents:
- Purchase request
- Purchase order
- Receiving report
- Invoice
- Voucher
- Payment – electronic or check
Mr. Gumbs was a $37,000 a year clerk, so it is a good guess management chose to use clerks and not professionals to manage the finance office.
Clerks take the paper that is produced and move it from one stage to the next. They assure the paperwork is complete and internally consistent. They assure the process is followed.
What they don’t do is get off their duff and go to the field to see, if in fact, the items purchased were actually received and if they are of the quality that was actually ordered.
This failure to verify the substance of the underlying transaction allows frauds, such as the one committed by Mr. Gumbs, to continue for extended periods of time.
Clerks also do not spend time studying the incredible amount of data that exists over the purchasing process. If someone had been analyzing toner purchases (which we know is a real temptation to employees), they should have been able to detect the high level of purchases that would warrant further review.
Data analysis also might have detected that the toner purchased was not consistent with the type of toner needed by the printers used at Sloan-Kettering.
Many finance offices operate in an obsolete and outdated manner. They do not rely on the modern, sophisticated data analysis and data mining tools that will allow for the early detection of improper practices.
The Auditors Role
As I read audit reports of the activities over financial activities, I do not see recommendations to revamp the underlying approach of the finance office. Instead, I see traditional recommendations for strong controls, including more documentation and more segregation of duties.
What’s really needed is people with different skills who can analyze data and can go out to the operating locations to be sure the organization received what it paid for.
We don’t need people looking at paper. In fact, in a real cutting edge office, most of the transactions would be electronic. There would be minimal paper.
Conclusion
The fraud at Sloan-Kettering could have been detected sooner, and stopped, if the staff in the finance office were trained and skilled in data analysis. The more data systems that are available to finance office staff, the more they can modernize the operations of the finance office, and the more they can add real value to the financial affairs of the organization for which they work.
Managers within an organization should not jump to the whims of an auditor unless the recommendation is truly cutting edge and adds real value to the process.
Too often, auditors recommend strong controls, but they are the wrong controls.
[1] Other papers reported the total cost of the fraud at $3.8 million. $1.2 million was for the period October 2009 to August 2010.