Lessons from an $8 million fraud

Posted on: November 15, 2018, by :

Lessons from an $8 million fraud

In hindsight, it seems obvious: Nathan J. Mueller’s pilfering of
financial services giant ING should have never been allowed to start,
much less last as long as it did. 

First, it was an accident that gave Mueller, an employee in ING’s
reinsurance division, the authority to approve company checks of up to

Then, the check his credit card company returned to ING could have
exposed his theft in the first year, but the accounts payable
department simply returned the check to him.

Finally, the evidence that he was living far beyond his means—the
expensive cars and watches, the lavish nightlife, the frequent trips
from Minnesota to Las Vegas—could have raised a few eyebrows among his
co-workers, but nobody voiced any concerns for years.

In the end, Mueller embezzled nearly $8.5 million from ING over four
years and three months. When he was caught, he was sentenced to 97
months in prison—a term that he began in February 2009 at the Federal
Prison Camp in Duluth, Minn.

Why should anyone care about Nathan J. Mueller? His case is
noteworthy because of the millions of dollars involved and the length
of time that his scheme went undetected and because his scheme was
made possible by a breach of controls. This article describes the
fraud in Mueller’s own words and examines the lessons learned with
strategies for management on how to prevent and detect similar schemes.


Mueller grew up in a small town in south central Minnesota. A high
school friend remembers that Mueller was popular in school, decent at
athletics, and competent at his schoolwork, and that he liked to play
rap music “pretty loud in his car” whenever he could. The friend also
remembers that Mueller’s family was always on a tight budget and that
Mueller didn’t like living that way.

Mueller attended a private liberal arts college and graduated with an
accounting degree in 1996. He enjoyed the inner workings of accounting
systems, and in 2000 he found himself part of ING after his employer,
life insurance company ReliaStar, was acquired for more than $6

Mueller played a lead role in transitioning his old employer onto a
new enterprise resource planning (ERP) system. A mistake by his new
employer created an opportunity for Mueller to steal company funds. In
the next section of the article, Mueller describes the fraud scheme in
his own words.


As a part of the changeover team, I became an expert on all
aspects of the ERP system including financial reporting, journal
entries, and, most importantly, checks and wire payment processing.
I was also, by mistake, along with a co-worker, given the authority
to approve checks up to $250,000. I discovered this permission quite
by accident some two years after the takeover.

Our accounting department consisted of a controller, assistant
controller, accounting manager (me), and three people under me.
Together with a co-worker (CW) and a subordinate (SUB), I was one of
three of us in my division who could request checks. CW and I also
could approve checks. In our small accounting department, we knew
everyone else’s system passwords. This was a practical workaround
for when we needed to get something done when someone was out of the
office. We often logged on as someone else to get the job done. One
morning, while sitting at my desk, I realized that I could log in as
someone else, request a check, and then log in as myself and approve
my own request. I went to work every day for the next year tempted
by the pot of gold that was there for the taking.

In June 2003, my wife was pregnant and my annual $80,000 salary
was just not getting all of our bills and college loans paid. I
thought that if I just paid off my debts, then we could do quite
well with my income matching our living expenses. I tested my scheme
by paying the current amount due on one of my credit cards that had
a name that included the word “Universal.” Just before I left the
office late on a Monday afternoon, I logged on as CW and requested a
check made out to Universal for $1,100. This check looked normal
because we did a lot of business with an insurance company that had
Universal as the main part of its name. After the check was
prepared, I mailed it with my statement to my credit card company,
and the amount was applied to my account without a problem. For a
while I felt guilty and worried. If I were caught, I’d lose my job
for only $1,100. Two weeks later, I decided to try it again, and my
next check was for $1,800. During that summer, I transferred all my
other debt balances to the Universal card and kept requesting checks
made out to Universal. After $88,000 was paid against my credit
card, I was free and clear of all debt, except for the mortgage on
our house.

Just before I’d cleared all the charges to the Universal card, I
noticed that one of my checks for $4,500 had apparently gone
missing. It wasn’t posted against my credit card account, and it had
not cleared the company’s bank account. I was worried that something
had caused the bank not to process the check or that my fraud had
been discovered internally. For a few weeks I nervously looked at my
emails each morning scanning the subject lines for words like
“explanation requested.” Each time the phone rang I assumed that I
was going to be called upstairs for a meeting. Then at around 10 on
a hot late-August morning, I received one of those brown interoffice
recycled mail envelopes in my inbox from our accounts payable
department in Atlanta. There was the check! I had forgotten to put
my personal credit card number on the check, and so the card payment
processors didn’t know whose account to credit. They then mailed the
check to the head office address. The accounts payable people also
didn’t know what to do with the check, so they sent it back to me,
the check’s requester. That stopped my 2003 fraud spree dead in its tracks.


By the middle of our bone-chilling winter, the effects of the
scare had worn off, and I started thinking about how easy it was to
get that $88,000 “bonus.” I couldn’t help myself. I wanted to do it
again, even though I didn’t really need the money like before. I
remembered the missing check scare, and so I now wanted a scheme
that bypassed mailing the checks to my credit card company. I
registered “Ace Business Consulting” with our secretary of state,
got a federal ID number, and opened a bank account at a major bank
with lots of branches in Minnesota. I chose Ace because our company
did a lot of business with another company that had Ace in its name.
On a Thursday afternoon, right before I left for the day, I logged
on as SUB and requested a check made out for $27,000. I then logged
on as myself and approved it. I picked up the check on Friday and
deposited it in Ace’s bank account on Saturday morning. The teller
treated the transaction like any other routine transaction and
handed me the deposit receipt showing that the whole $27,000 was
available. I still remember her telling me to have a nice day. Using
this method, I stole about $1 million in 2004, $2 million in 2005,
$4 million in 2006, and $1 million in 2007.

Getting a check was easy because I logged on as CW or SUB and
requested a check and then I approved the check. The checks were
printed overnight, and it was SUB’s job to collect the physical
checks every day from the company building next door. I had to make
sure that SUB had the day off the next day because, when SUB was
away, I was the person who collected the checks. At my desk I would
remove the Ace check from the batch, and all the other checks were
mailed off to where they were supposed to go. Normally, I would just
wait for SUB to take the day off, and I’d request an Ace check the
day before. If I needed money urgently, I’d give SUB the day off so
that I could collect the checks.

For every credit (to the bank) there has to be a debit, and my
debits needed to be hidden somewhere. Our payments were usually for
insurance claims, commission expenses, various refunds, or an
administrative expense. In 2003 and 2004, I hid all the debits in
ledger accounts that had a lot of reconciliation activity, making
sure that my debit helped the account reconcile to zero. One of my
accounting tasks was to record the investment income of our Canadian
investments in U.S. dollars (USD) in our U.S. accounting records. I
was supposed to use the average Canadian-dollar-to-USD exchange rate
to record the interest income. From 2005 to 2007, I would calculate
the real exchange rate, and then I would purposely weaken the
Canadian dollar by a few basis points to understate the USD value of
that income. I was the only person who worked on this task for seven
years, and because the accounting system had thousands of journal
entries and billions of dollars of transactions, my Ace checks
remained hidden.


For every Ace check there was a deposit to my bank account, and I
needed some explanation to spend my money without making my wife or
my friends suspicious. In the beginning I told my wife, friends, and
family that I was doing some accounting work on the side. At that
time my lifestyle wasn’t very different, and so the moonlighting
explanation worked fine. When my lifestyle included high-end
European cars, costly Las Vegas trips, extravagant watches, and
expensive nightclub entertainment, I told people that I was an
amazingly successful gambler and I got my extra income from hitting
large jackpots on high-dollar slot machines. To do this, I would
first wire money down to the casino in Las Vegas, and then I’d fly
there (first class on Northwest). I’d then carry up to $100,000 in
cash back home at the end of the weekend with a stack of W-2Gs
(which report gambling winnings). This gambling success explanation
wasn’t working all that well after two years and just under $3
million in “winnings,” and in June 2006 I knew that I had to choose
between my wife and my fraud. It was either come clean to her about
what I was doing or get away from her to insulate her from all the
consequences coming my way. I knew I would eventually be caught, so
I chose divorce.

By mid-2007, my fraud had cooled off, and I’d only taken $1
million so far that year. An internal company review showed that
three of us in accounting had check approval authorities, and we all
received internal forms that needed to be completed. CW and I were
talking about it with my boss in the hallway outside our offices one
morning, and we all agreed that since we were all involved in the
accounting function, we should not have the authority to approve
checks. We actually revoked our own check approval authority.

CW and my ex-wife became friends while she and I worked together.
At an afternoon lunch at Panera Bread in August 2007 they were
(surprise!) talking about depressive, anti-social, hard-drinking,
and overweight me. My ex-wife told CW that she didn’t really believe
the lucky-at-gambling explanation for my life in the fast lane. CW’s
suspicions were raised, and a few days later she ran a query to list
all the 2007 checks that she had requested or approved. The results
included 10 Ace checks adding up to $1 million. At 2 p.m. on Friday,
my boss asked me for the supporting vouchers for the Ace checks. I
said that since SUB was off for the day, we should get to the bottom
of things on Monday morning. Monday morning’s meeting didn’t go very
well, and I literally ran out of the office. On Tuesday at 10:30
p.m., two of the company’s fraud investigators rang the doorbell at
my home in the exclusive suburbs of Minneapolis. It was an
unpleasant conversation in which the word “Ace” was mentioned
several times and ended only because I said that I wanted to talk
with my attorney.

Organizations need an effective antifraud strategy to deter and
detect employee fraud. These programs should include fraud prevention
activities, proactive detection activities, fraud investigation
activities (for suspected frauds), and the concluding civil remedies
and criminal actions. Fraud investigations and obtaining civil
remedies are very costly, and it is generally believed that prevention
activities are the most economical way to control losses from fraud.
Effective prevention activities usually involve maintaining an
organizational culture of honesty and high ethical standards,
assessing fraud risk, and reducing the opportunities to commit fraud.
This section discusses the prevention activities that might have
played a role in preventing the Mueller fraud.

An organization’s hiring policy (where allowed by law)
should include past employment verification, a background check, a
credit check, and education verification. These policies and
procedures should be applied in every hiring instance, including those
in which groups of employees are onboarded as the result of a
corporate entity acquisition.

Mueller found himself employed at a multinational company as a result
of a takeover, effectively bypassing any screens that the company
might have had in place. After a takeover, management should be aware
that the incoming employees likely will have less loyalty to their new
employer than the original employees have. The acquirer should
carefully weigh its options when it comes to an assessment of fraud
risk and give due consideration to the previously mentioned new hire
procedures. Management also should consider subjecting the new
employees to a modified, and possibly less strenuous, version of the
new-hire procedures. In Mueller’s case, a check of his credit report
at that time would have shown that he was financially strapped and
under real pressure for extra income, though that might not have been
enough to disqualify him from receiving a job offer.


The Mueller case is a good reminder of the importance of controls
related to ERP systems. Authentication controls identify the
person accessing the accounting system and ensure that only legitimate
users can access the system. These controls include passwords, smart
cards, and biometric identifiers. In Mueller’s case, the
authentication controls failed because he effectively impersonated
either SUB or CW. His fraud could have been prevented if the company
had used multifactor authentication, perhaps by requiring both a
password and a smart card inserted into a card reader.

Authorization controls restrict the access of authenticated
users to certain classes of information and capabilities. For two
years, Mueller didn’t even know that he had permission to approve
checks. His approval limit of $250,000 was also excessive. The ability
to request and approve high-dollar checks, in part, facilitated the

Processing controls ensure that data is processed correctly
and, by implication, that obvious errors are not processed. The
Mueller fraud was made possible, in part, by the fact that he could
keep his fraud concealed by posting the debits to a ledger account of
his choosing (effectively journalizing his own fraud).

A control weakness related to physical safeguards was that
the requesting and authorizing employees had access to the printed
checks after they were printed. Employees who can request or approve
payments should not have access to the printed checks. This control is
also important in claims processing centers that, for example, process
health insurance claims or tax refunds.

It is difficult to avoid the complexities and volume of transactions
that come with being a multinational financial services company. Good
business practices together with the risk of fraud provide suitable
reasons to avoid situations where just one or two people understand
the whole system and where one or two people are responsible for
reconciliations and write-offs. Because Mueller could control the
ledger accounts that were debited, he could keep his scheme
undetected. This case shows the importance of the separation of
operational responsibility from recordkeeping responsibilities.

The elements of the fraud triangle include pressure, opportunity, and
rationalization. Extensive personal debts and a new child provided the
pressure for the first phase of the fraud. As a fraud prevention
measure, organizations should have employee support programs
in place to assist employees struggling with addictions, mental and
emotional health, and family and financial problems.

The use of forensic analytics would have raised alerts with
respect to the Ace vendor. Forensic analytics is the act of obtaining
and analyzing electronic data using calculations and statistical
techniques to reconstruct, detect, or otherwise support a claim of
embezzlement or other financial fraud. The main steps in the process
are data collection; data cleansing; running the analytics tests; and
evaluation, investigation, and reporting.

The largest subsets growth test is based on the fact that
people escalate their frauds at a much more rapid pace than what would
be considered normal. They also don’t know when to stop. A fraudulent
vendor often shows explosive year-over-year growth. An employee using
a company purchasing card for personal expenses often has geometric
growth in total purchases. An employee with a fraudulent overtime
scheme also often shows high growth in hourly totals, perhaps even to
impossible levels. Running a computer-based test to review the vendors
with the largest annual growth in total dollars would have shown that
Ace’s dollar growth was abnormally high and suspicious.

Mueller’s lifestyle included expensive cars, trips, watches, and
nighttime entertainment. People at work saw and heard that he was
living the high life. Fraud awareness training reminds
employees at all levels in the organization that fraud is real and
that it could be happening in their departments. A co-worker living
beyond what his or her salary should allow is a classic red flag for
fraud. “From early on, co-workers were aware of my trips to Vegas, my
gambling, and my car,” Mueller said. “As time went on, they would have
noticed more and more things I had, and that should have sparked
questions about where all my money was coming from.” Had suspicions
been raised as a result of fraud awareness training, this fraud could
have been stopped as early as 2004.

It was a relatively simple query that highlighted the Ace checks.
Mueller was eventually caught because of suspicions of fraud, but it
was more due to a coincidence than anything else. Frauds are often
discovered by tips, and to benefit from this detection avenue,
organizations need to make available to employees an anonymous
fraud reporting channel
, such as a third-party hotline.

The fraud would have been discovered in 2003 if the accounts payable
people had looked more closely at the $4,500 check that was returned
to them. A financial institution returned a check to the company
saying that it didn’t know what the payment was for. It should have
seemed odd that a credit card company was being paid with a single
check for a single account. One detection tactic would be to have all
abnormal interactions with outside parties (e.g., errors,
refunds, and overpayments) reviewed by a risk management person
knowledgeable in financial matters so that remedial actions (including
system changes) can be taken.

The fraud scheme used checks payable to Ace. While Mueller did not
set up the vendor as a new vendor, companies need to carefully control
who has permission to add new vendors to the payments system.
Also, vendors that are dormant need to be deleted from the system to
prevent employees who want to start a fraud from modifying an existing
record instead of creating a new vendor.


Mueller has paid back about $860,000 of the money he stole, he said.
Almost all of that has come in the form of assets—homes, cars,
jewelry, and financial accounts—he gave directly to ING or that were
forfeited by his ex-wife and friends, he said. He pays $75 a month
from prison through a repayment program.

With time off for good behavior and for completing the residential
drug abuse program (for alcohol abuse), Mueller is scheduled to be
released from prison in September. He will have spent a year and three
months longer behind bars than he did stealing money from ING—a scheme
that in hindsight should have never gotten started, much less lasted
that long.  


A corporate mistake opened the door for Nathan J. Mueller’s
Two years after the error was made, he discovered he
was authorized to request and approve checks of up to $250,000. A
co-worker also was accidentally granted the same privileges, while a
subordinate was authorized to request checks. 

Mueller, his subordinate, and the co-worker often logged on as
one another to get work done.
This allowed Mueller to
request checks under one identity and then approve them under his own

Mueller and his subordinate were allowed to physically pick up
This allowed Mueller to take physical checks to the
bank to be deposited into the account of a fake vendor he set up.

Mueller hid his debits in ledger accounts that he
Better separation of duties could have helped to
prevent the scheme.

The fraud netted nearly $8.5 million in four years.
The money was used to buy expensive cars, watches, and nighttime
entertainment as well as to pay for numerous trips from Minnesota to
Las Vegas. Living beyond one’s means is a classic red flag of possible

Mueller told his wife his extra money was from gambling
After a while, she began to doubt that explanation,
and they divorced.

The fraud was uncovered when Mueller’s ex-wife expressed her
doubts about his income to his co-worker.
The co-worker
spotted questionable transactions in the company records and brought
them to management’s attention. The scheme unraveled quickly after

Mueller was sentenced to 97 months in federal prison after
pleading guilty to fraud.
He is due to be released in
September after 5½ years in prison.

Mark J. Nigrini (

) is an assistant professor at West Virginia University in
Morgantown, W.Va. Nathan J. Mueller is an inmate at
the Federal Prison Camp in Duluth, Minn. He can be reached starting
in September at


To comment on this article or to suggest an idea for another
article, contact Jeff Drew, senior editor, at

or 919-402-4056.


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