Serves the Commercial Small Fleet Market of 10 – 50 Vehicles

Anatomy of a Fleet Scam

May 2004, by - Also by this author

Bryan Moylan was a good employee. He worked his way up at OCB Reprographics in Irvine, Calif. from a driver to fleet manager, overseeing a fleet of over 100 vehicles for the $50 million printing and reprographics company. Chuck Hayes, the company’s CEO, took Moylan under his wing and entrusted him with the autonomy to make purchasing decisions for the department. Moylan responded by implementing fleet practices that saved OCB a lot of money. And then he stole 75 vehicles from the company.Moylan’s crime is not that unusual. Security experts estimate that as many as 30 percent of all employees steal, according to the U.S. Small Business Administration, and another 60 percent will steal if given sufficient motive and opportunity. BF’s sister publication, Automotive Fleet, ran a profile of OCB Reprographics’ fleet practices in Jan. 2002. Using interviews from the police investigator, the prosecuting district attorney, the CEO of OCB and the AF profile, Business Fleet examines the anatomy of a fleet scam.Moylan Goes to PrisonOn April 16, 2004, Bryan Moylan, 43, pleaded guilty to 75 counts of grand theft auto and embezzlement. Moylan accepted a plea bargain from the Orange County district attorney’s office and is now serving a four-year state prison sentence. He was also ordered to pay restitution. Moylan worked with his lawyer to help recover the stolen vehicles, Deputy District Attorney Pete Pierce says. The total loss to the company is estimated at $300,000 to $400,000.Moylan’s scam took two forms, says Ron Carr, the Irvine Police investigator assigned to the case. In the first phase the leases had expired on 45 of the stolen vehicles. Moylan paid off the residuals to the leasing company, Enterprise Fleet Services, with company funds and then sold vehicles through a wholesaler and pocketed the profits. In the second phase of the scam the other 30 vehicles were sold prior to the leases expiring.Interview Reveals InconsistenciesDuring the Automotive Fleet interview in 2001, Moylan told Terry Flesia, the writer, that OCB was leasing from Enterprise on 36-month open-end leases and then usually extending the leases to 42 months. He also said that OCB was running its vehicles regularly to 250,000 miles. To reach that mileage in 42 months, the vehicles would have to run over 70,000 miles a year--a lot of miles even for the most overworked fleet vehicle.Moylan told Flesia that he set a reserve for depreciation schedule that got the vehicles to zero depreciation in 36 months. If, in fact, the vehicles were running to 250,000 miles, a 60- or even a 72-month lease would have made a lot more sense for the company’s cash flow.By operating these leases on an accelerated depreciation schedule, Moylan ensured that the lease was fully paid off, or close to paid off, by the time the vehicles were remarketed. Pierce says Moylan told OCB the company owed “mileage penalties” for those vehicles in which the residuals weren’t quite paid off. What’s wrong with this picture? There are no mileage penalties in open-end leases. Moylan then paid off the residuals to Enterprise and requested signed-off titles. Enterprise, having no further financial interest in the vehicle, complied. Enterprise says it was never aware of the scam. There was no reason for the company to suspect any wrongdoing. Because OCB took title to the vehicle at the end of the lease, an operating lease became a capital lease—another business decision that didn’t seem to make sense. As owner of the vehicles, OCB would then have to show them as capital assets on their books, defeating a major advantage to leasing vehicles. Surprisingly, OCB never questioned why it didn’t receive any revenue on the vehicles being replaced, nor did the company question the non-existent mileage penalties on open-end leases.Moylan worked his scam successfully on 45 vehicles coming off lease. Yet he sold another 30 vehicles without title while they were still on lease. In other words, buyers received vehicles without pink slips. How?How He Did ItMoylan relied on two factors to carry out his scam. First, as fleet manager, Moylan had the authority to buy and sell vehicles. Flesia explains that for open-end leases, a company officer signs the original master lease agreement covering all legal and financial aspects. That agreement allows the fleet manager to execute and sign the vehicle lease order for each vehicle with no oversight. It is not unusual, as in the second phase of this scam, for the fleet manager to sell vehicles and not physically possess the title. Flesia says he signed thousands of lease orders with no oversight whatsoever, and sold thousands of off-lease vehicles to employee-buyers and wholesalers over the years. Second, Moylan took advantage of the considerable trust that Chuck Hayes, the CEO of OCB Reprographics, invested in him. OCB is one of the biggest and most successful printing companies in California. Hayes attributes part of that success to an incentive program that gives key long-term employees the autonomy to make decisions that increase profits. Moylan was dedicated to the company, Hayes says.OCB has 460 employees. Over half of them have been with the company for over 10 years. “I’ve always been very proud of the fact that I’ve been able to retain my employees,” Hayes says. “Now, as I’m looking back at Bryan, I gave a little too much.”Hayes remembers that during the recession of the early 90’s the company had much tighter reins on operations. But then OCB went through several mergers and more than doubled in size. “When you get really busy some of those tight rules go away,” Hayes says. “If you’ve got a staff of people that have been with you for a long time, and you don’t look at them as crooked people, you loosen up a little bit. The most important thing is taking care of the client. The company is working profitably so it can’t be working too bad, right?” Because Moylan was wholesaling the vehicles, not Enterprise, the titles went from Enterprise directly to the designated buyer. Therefore Moylan’s signatures were never on the titles—he’d just hand them off to the wholesaler—and pocket the money when the vehicles were sold. Even with blank titles and Moylan’s autonomy, he still needed to get the sales proceeds into his own hands. How did he do it? Hayes’ one-word answer is “cash.” Any wholesaler should be suspicious when a fleet manager is making a cash deal. The wholesalers Moylan used, a couple of automotive repair shops, were not charged with crimes.The scam is easier to understand knowing that OCB is worth $50 million. The profits from vehicle sales never amounted to much. Sometimes the company would give a vehicle away to a needy employee or use the money for a company picnic. Moylan’s $300,000 to $400,000 haul over a two-year period was hidden in a shell game of vehicles being constantly moved into and out of fleet. “It was a vicious circle,” Hayes says. “But it was so well thought out, everyone was bluffed. On the other hand, somebody did fall asleep at the wheel.”A Check, But No BalanceHayes says that each time Moylan needed a vehicle he had to fill out a request-for-funds form, a standard procedure for company purchases. The RFF requires the vehicle’s make, price, date of delivery and type of lease. And it needs to be signed by the president. Once Moylan had that signature, he was free and clear. Hayes says nobody bothered to question Moylan because he had been an excellent employee. Still, the people who bought the vehicles without titles were eventually going to ask for them. And they did.The UnravelingInvestigator Carr says that an employee had come to someone within the organization asking to buy a vehicle, and the sale was approved by one of the company principals. Though that vehicle was still on lease, it was most likely already sold. Pierce says internal OCB memos asked Moylan to locate certain cars and bring them back to headquarters. Hayes asked the president of the company, Moylan’s supervisor, to see how many request-for -fund forms had gone through in the past eight months. There were too many. Hayes says the president thought the company was in a typical cycle in which it needed more vehicles. “Then we realized how many,” Hayes says. “There weren’t just 25, there were 50 or 60.”More retail buyers came to OCB looking for their titles as well, though the OCB books still showed them as being on lease.Hayes recounts the moment he called Moylan to confront him. “He was in the hospital because his newborn baby was having kidney problems,” Hayes says. “I said I knew he was having personal problems but I needed to know what was going on. And he broke down. He spilled his guts about all of it. He said he lost track there were so many.”The RecoveryThe Irvine Police Department is aiding in the recovery of the cars. Investigator Carr says at least one of the embezzled vehicles was pulled over, and the car, without title, was impounded. The recovery of other vehicles has been made easier as more people show up at OCB looking for their pink slips. When they do, Hayes has the vehicles repossessed. “We’ve had some irate people come in. But I try not to feel guilty for people that buy a car without proper registration,” Hayes says. “I don’t want to hurt anyone on this. We’re as much a victim as they are.” The company has recovered between 15 to 20 vehicles this way.Owners of 45 of the stolen vehicles do have titles in their names, though. The legal recovery of those vehicles will be a lot messier. Hayes still hopes to get money out of Moylan. A hearing is scheduled to figure out Moylan’s assets for restitution. Hayes may also sue Moylan’s alleged accomplices.OCB has since implemented a stricter system of accountability. The pink slips are now with the controller, and three people, including Hayes, must sign off on an RFF form before it is processed. Hayes says the company is busier than ever and profits are up. But he’s a little more cynical about his philosophy of empowerment and trust. “Now I have to look at everybody and wonder, are they trustworthy?” he says. “I think that’s a terrible thing.”
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