US District Judge Sarah Evans Barker likened James Spaulding, 26, to a “thief who finds himself in the bank after closing hours.” She ordered him to serve four years and nine months and to pay back $546,656 – the $226,773 he stole plus the cost of auditing the fund after the theft came to light. Spaulding pleaded guilty to seven counts of bank fraud and one count of money laundering. Investigators noted that Spaulding’s crime would not have been caught if an audit hadn’t been started following the uncovering of an earlier scandal (see Probe Continues into Former Pension Benefits Officer ).
“It was simple to commit this crime,” said Assistant US Attorney Steven D. DeBrota. “It was very hard to find it.”
Indeed, Judge Evans was critical of the $8.8 billion pension fund’s lack of controls that made the theft possible. She said the fund made the “bone-headed” decision to give Spaulding unfettered access to the computer system – access that allowed him to change information about pensioners’ beneficiaries, put in a request for a pension payout, and then cut a check – without anyone looking over his shoulder, according to the Indianapolis Star (see Grand Jury Indicts Another Ex-Indiana Pension Worker ). “PERF set the stage for this,” Barker said, according to the report.
Spaulding, a temporary worker at PERF from January 2002 to July 2002, was assigned to a project to locate pensioners who had not received their retirement money. According to prosecutors, he targeted accounts that had had no activity in months or years so no one would notice. He would designate his friends as beneficiaries and send them checks. Six others involved in the scheme, who did not work at the pension fund, have since pleaded guilty and have been sentenced or are awaiting sentencing.
Spaulding is the third former pension worker sent to federal prison because of crimes relating to the fund. Walter Kevin Scott, a convicted identity thief hired in 2001 to help oversee the fund, was sentenced last year to 10 years in prison (see Former PERF CBO Scott Gets 10 Years behind Bars ). Scott was convicted of embezzling $659,000 from his former employer, Bloomington, Indiana-based Cook Group Inc., and for stealing another man’s identity to land his job at PERF. He also pled guilty in 1996 to bank and mail fraud for stealing the identities of two residents.
While he was not accused of stealing any money – or identities – from the fund, he resigned from his post at PERF in August of 2002 after his criminal past was revealed to state officials (see Probe Continues into Former Pension Benefits Officer ). The discovery of Scott’s criminal history sparked a more-than-yearlong criminal investigation into the fund by the State Police, Internal Revenue Service, and US Secret Service. As a result of that probe, Shaunna Stone, a temporary worker who admitted stealing money and identities, was also sentenced last year to four years in prison (see Former Indiana Pension Staffer Sentenced in ID Theft Case ).
During Friday’s sentencing, investigators and federal prosecutors unveiled a series of problems at the fund, all discovered in the course of the criminal inquiry, including:
- The fund hasn’t balanced its books for a significant amount of time – an issue noted by the State Board of Accounts in the five previous annual audits.
- An accounting error from the 1980s, discovered only within the past several months, means some pensioners or beneficiaries might have gotten paid more in retirement benefits than they were supposed to.
In addition, the accounting firm Crowe Chizek has been hired to scrutinize individual accounts to check the accuracy of pension balances, according to the Indianapolis Star. Crowe Chizek analyzed 1,000 accounts and found incorrect balances in at least a couple of hundred of them, inaccuracies that gave those pensioners a combined $470,000 more in retirement dollars than they were entitled to, according to the report.
PERF Executive Director Craig Hartzer said the fund was addressing all of the problems highlighted by investigators, and that the fund is working on contracting with an accounting firm to help balance the books.
Even though Spaulding must pay back the money to the pension fund, Hartzer said he wasn’t counting on seeing a penny, according to the Star.
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