Theft of Capital Assets: How to Understand It and Prevent It

Day 7 of 30 Days of Fraud

The Theft

In businesses, nonprofits, and governments, the theft of capital assets happens often. Today I explain how these thefts occur and how you can prevent them.

A USA Today article began with, “Stolen and sensitive U.S. military equipment, including fighter jet parts wanted by Iran…have been available to the highest bidder on popular Internet sales sites.” The article went on to say that the equipment, “purchased with taxpayer money,” was available for purchase on eBay and Craigslist and included “components from F-14 fighter jets” and “used Nuclear Biological Chemical protective suit.”

Capital asset theft

Picture is courtesy of Adobe pStock.com

Capital assets often go missing because no one is paying attention, and the thief knows it. Such assets can be stolen with the intent to sell and convert to cash or simply for personal use.

The thefts often occur when employees place equipment or other capital assets in their vehicles and drive home. If the employee wants to cover their tracks, they might complete accounting paperwork for disposal of assets (saying the equipment was junked). More often than not, however, the asset is just stolen because the employee knows that no one will notice, or, if someone does, he can say, “I don’t know what happened to that piece of equipment.”

Long-term employees realize that the external auditors seldom audit existing capital assets. Yes, the auditor will examine an invoice, but how many auditors physically inspect plant, property and equipment?

The Weakness

The main enabling factor is usually a lack of accountability. Many companies, nonprofits, and small governments do not perform periodic fixed asset inventories. Often equipment is purchased and added to the depreciation schedule, but no one–at a later date–compares this master list of fixed assets to what is (or should be) physically present.

The Fix

Performing periodic inventories is the key to lessening the threat of capital asset theft.

First assign each capital asset to a person (usually a department head or a supervisor); let this person know that he or she is personally responsible for the item. Then have someone external to each department perform periodic inventories of departmental assets.

Also, install security cameras to record all activity.

City Manager Pockets Cash from the Sale of Excess Property

Day 30 of 30 Days of Fraud

The Theft

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.

Illegal sales of government property

Picture is courtesy of AdobeStock.com

Department of Justice Indictment Press Release

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:

  • Trucks
  • Fork Lifts
  • Bulldozers
  • Other industrial equipment

Department of Justice Sentencing Press Release

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 Weakness

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.

The Fix

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.