A former marketing manager at Nike, Inc. has been sentenced to more than two-and-a-half years in federal prison this week for a scheme to commit fraud against the company and his childhood friend.

Errol Andam, 47, was sentenced to 31 months in federal prison and 3 years of supervised release. He was also ordered to pay more than $1.6 million in restitution. The Internal Revenue Service (IRS) had already seized $212,838 in criminally-derived proceeds from Andam, and those were forfeited as well.

The Fraud Scheme

According to the DOJ press release, from 2001 until his termination in 2018, Andam was employed by Nike at its headquarters in Beaverton, Oregon as a marketing manager. Among his job responsibilities was the design, build-out, and operation of “pop-up” shops, which are temporary Nike shops which Nike places near and tailor to sports competitions and other special events around the U.S.

Nike Pop-Up Store

In the summer of 2016, Andam recruited a childhood friend to establish a company to design and build the pop-up venues as an independent contractor for Nike. Andam abused his authority as a manager at Nike to ensure that his friend’s company was consistently awarded the contracts for these jobs. Andam assumed control of much of the company’s financial operations, managing financial accounts and issuing invoices to Nike, although he was not formally employed by the company. To conceal his role in the scheme, Andam used an alter ego, “Frank Little,” to invoice Nike and manage the contract company’s account with Square, Inc., a California-based provider of mobile credit-card-processing services.

In 2016, Andam also used an Oregon-based limited liability corporation (LLC) he owned so that he could use the defunct entity as a shell company to funnel the proceeds diverted from Nike and his friend’s company to accounts under his personal control.

Beginning in September 2016, Andam caused credit-card sales at various pop-up venues around the U.S. to be run through card readers associated with a Square account owned by his friend’s company. These proceeds were transferred to Square in California and then to Andam’s LLC bank account in Oregon. Andam represented to both Nike and his friend that the proceeds of these sales were credited against the total amount Nike owed to his friend’s company. In truth, Andam simply pocketed the proceeds and, as “Frank Little,” invoiced Nike for the full cost of the contracted services.

From September 2016 through December 2018, Andam diverted and embezzled nearly $1.5 million in Nike proceeds for his own use. In July 2018, Andam submitted a fake financial statement from his LLC in support of a residential mortgage loan application. The financial statement falsely reflected as revenue checks for $194,000 drawn on a bank account owned by his friend’s business. Andam forged his friend’s signature on one of the checks and withdrew much of that money without his friend’s knowledge.

The Charges

On February 4, 2021, Andam was charged by criminal information with wire fraud, money laundering, and making false statements on a loan application. On April 12, 2021, he pleaded guilty to all three charges. This case was investigated both by the IRS Criminal Investigation and the FBI.

Conflicts of Interest Fraud, Red Flags & Prevention

This case reminds us how common, frauds involving conflicts of interest really are in the procurement process. In this case, the Marketing Manager misrepresented to the Company that he was impartial in business decisions when in fact, he had undisclosed financial interest in a contractor/consultant. He also abused his authority as manager to consistently award his contracts to the same contractor. Unjustified, and/or repeat awards to a sole contractor is, often times, a tell tale sign of procurement fraud.

So what may a company do to protect itself from this type of fraud?

Red Flags

Firstly, all requests for an exception to allow the award of contracts to a single bidder should be closely reviewed.

Other red flags to consider:

  • Unexplained or unusual favoritism shown to a particular contractor or consultant
  • “Urgency” of project given as reason for sole contractor awards
  • Person in charge of awards disclosing confidential bid information to a contractor or assisting the contractor in preparing the bid
  • Employee having discussions about employment with a current or prospective contractor or consultant
  • Close socialization with and acceptance of inappropriate gifts, travel, or entertainment from a contractor
  • Vendor or consultant address being incomplete or matching employee’s address
  • Person in charge of awards leasing or renting equipment, or leasing property to a contractor for performing contract work
  • Contracting or purchasing employee lives beyond his or her means
  • Contracting employee fails to file Conflict of Interest or Financial Disclosure forms
  • Employee declines promotion from a procurement position

Fraud Preventive Measures

Although this type of fraud could be quite complex to detect and may not be completely eradicated, conflicts of interests in procurement can be minimized by adopting adequate preventive measures. Some best practices include:

  • Implement a Conflicts of Interest policy and regularly train employees on the policy
  • Require employees to complete and sign a conflict of interest declaration
  • Implement internal company controls to evaluate management
  • Create whistleblowing channels so that any red flags can be reported both by employees and vendors
  • Select employees and vendors by conducting due diligence before conducting procurement

Compliantly LLC is as a consultancy engaged in compliance that has been trusted by clients to provide advisory to mitigate fraud and corruption, including ,whistleblowing systems, due diligence, policies and training . Protect your company from fraud, contact us for more information on our compliance services.

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The Compliance Lady CONFLICTS OF INTEREST, DOJ, Fraud, IRS, Procurement, Shell Companies, USA

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