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Hello, I'm Dan Ramey, contributing editor to Internal Auditor Magazine's Fraud Department and president and founder of Houston Financial Forensics.
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I am pleased to introduce this episode of Fraud on the All Things Internal Audit Podcast, which provides fictionalized accounts of fraud based on actual events.
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Beer Below Deck, Part One.
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The tradition that looked harmless.
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Petty Officer George LeClair was always eager to boost morale for his crewmates when his submarine was deployed at sea.
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A mechanic, LeClair especially liked one old tradition, Beer Day, which allowed each sailor two beers after 45 continuous days underway.
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These days, the tradition was rarely practiced,
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and required formal approval from Naval Command.
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But LeClair saw an opportunity.
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When the submarines' cooks declined ordering the beer, LeClair used his parts ordering authority to place a requisition through the Navy supply system the same way he ordered parts.
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Except instead of ordering spare parts, he requested 350 cans of beer.
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Not wanting to raise eyebrows,
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He labeled the line item libations, not 12-ounce can of beer.
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The request landed in Petty Officer Philip Sebastian's inbox.
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Sebastian, a supply specialist who vetted requisitions before they were sent out, paused over the item.
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He didn't know what libations meant.
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Suspecting something was off, he rejected the request.
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No beer shipped.
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No money was lost.
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Controls had worked.
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Case closed, right?
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Part 2, the cover-up.
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Not so fast.
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Six months later, an inspection was coming.
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That stray requisition still sat in the system and could drag down the submarine's inspection score.
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Inspection ratings matter.
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They influence promotions, career paths, reputations.
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So Sebastian and the supply team decided the presence of the requisition was a risk to good sailors' futures.
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So they did something worse than allowing a questionable order.
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They rolled the system back to cover it up.
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In the months since the beer order, the submarine supply software had been upgraded to a version that prevented deletion of requisitions.
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The team temporarily installed an older version that allowed deletions.
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removed the libations requisition, then reinstalled the updated version.
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In other words, they changed software, manipulated official records, and erased evidence to hide a prior irregularity, all to protect an inspection score.
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During the review, junior
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Inspector Elaine Thorson asked if anyone had deleted any requisitions, Sebastian's hesitation betrayed him.
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He had not expected the question, and once asked, he answered yes.
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That admission unraveled the cover-up.
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What began as a blocked, odd requisition had become an unauthorized software change and a deliberate concealment that cost the government more than $100,000 to remediate.
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Part 3, Reading the Fraud Triangle.
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This story is a textbook example of the fraud triangle, but with A twist.
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The original misstep wasn't grand theft.
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It was a morale-driven workaround.
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The cover-up turned it into fraud.
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Pressure.
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The crew wanted to avoid a bad inspection score that might derail promotions and harm innocent sailors' careers.
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That pressure felt urgent, and to many, justified.
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Opportunity.
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Access to systems, the ability to reinstall older software, and weak change management controls created a path to erase records.
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Rationalization.
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The crew told themselves they were protecting the ship and their shipmates.
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They never got the beer, they argued, and they were just cleaning up a record to avoid unfair consequences.
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That rationalization blurred the boundary between loyalty and misconduct.
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Part four, the costs.
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The consequences were real and sharp.
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Sebastian and his supply supervisor were demoted and discharged.
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LeClair, who initiated the requisition, received disciplinary duties, scrubbing bathrooms for two weeks.
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Instead of protecting sailors' ranks and reputations, the cover-up sacrificed them.
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More than discipline, this episode exposed structural problems, weak segregation of duties, lax change management, and a culture where workarounds could look like loyalty.
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Those conditions turned a small rule bending into a damaging act of concealment.
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You've been listening to All Things Internal Audit Fraud.
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Check out this month's issue of Internal Auditor Magazine at internalauditor.theia.org.
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Stay sharp, stay ethical, and stay tuned for the next episode of All Things Internal Audit Fraud.
