Weeks later, still no arrests in Woodruff Arts Center scam

It has been nearly four weeks since officials at the Woodruff Arts Center announced that a former employee had bilked the institution out of $1.48 million by funnelling money through a fake company he had set up.

Since then, no one has been arrested and the name of the former employee suspected of embezzlement has not been released, leaving Woodruff supporters and observers frustrated.

“How long does it take for a tiny investigation like this?” said Ferdinand Levy, a former dean of Georgia Tech’s College of Management. “This isn’t Madoff.”

Virginia A. Hepner, president and CEO of the Woodruff Arts Center, re-confirmed Sunday that all of the center’s findings from an internal investigation have been turned over to the U.S. Attorney’s office, which “will determine the timing of any announcements it will make about the investigation and results thereof,” she said.

“We are appalled by this fraud and are aggressively pursuing recovery options,” Hepner said. “Donors can know that their contributions are not at risk. If anything, this event will enhance the proper oversight and governance of the center’s operations.”

In an email to The Atlanta Journal-Constitution, the U.S. Attorney’s Office would not comment.

On Nov. 27, Hepner, who had only been on the job since July, announced that over the past five years, a former employee had been submitting invoices from a dummy company for unrendered services.

Hepner did not say what the supposed services were, but acknowledged that the “company” was one of the Woodruff’s 13 regular vendors. Hepner at the time said the worker created the company and assigned it a vendor number. And as an administrator since 2004, he could request payments for the fake company with little to no oversight.

The amounts billed and paid gradually increased, but not enough to raise any red flags.

It wasn’t until the worker quit in October for unrelated reasons that it was discovered to be a scam.

The AJC reported in November that after the employee’s departure, the suspicious invoices were brought to the attention of Hepner, who worked for 25 years in the banking industry before coming to the Woodruff.

Hepner conducted an internal investigation after the fraud was uncovered before sending the findings to the U.S. Attorney’s Office, which is often asked to prosecute complex financial crimes, particularly when the theft exceeds $500,000.

While the $1.48 million loss represented only a fraction of the Woodruff’s annual budget, it could not have come at a worse time in terms of finances or publicity.

The arts center — including its divisions the Alliance Theatre, Atlanta Symphony Orchestra (ASO), High Museum of Art and Young Audiences — operates on a $100 million budget, but ended fiscal 2012 with a $2.165 million deficit.

The center, which raised $38.7 million in fiscal 2012, recently launched a $9.2 million corporate fundraising campaign, its largest ever.

Levy believes the Woodruff needs to increase internal controls to prevent fraud and maintain trust and order. While he doesn’t donate directly to the Woodruff, Levy has had season tickets to the ASO since 1972.

“I have talked to at least five or six people who do donate and they are not going to anymore because of the lack of transparency and the fraud,” Levy said. “People ask, ‘Should I give?’ And I look at them and say, ‘Are you crazy? Why donate to a place where somebody stole a million and a half dollars and nobody can tell you how or why?’”

Hepner contends that the Woodruff has been more than transparent. Immediately after the fraud was discovered, she voluntarily called a press conference, “which hardly indicates a lack of transparency,” she said.

“We certainly understand the disappointment surrounding this fraud. No one is more disappointed than those closest to the Center, including management and the board,” Hepner said. “But any suggestion that we have not been transparent is misinformed or uninformed.”

Hepner said she did not reveal the name of the suspected employee because of personnel reasons and at this time, there are no other suspects.

“The ‘why’ of the fraudulent activities presumably was to enrich the employee involved. We said the employee is no longer with the Woodruff Arts Center and that we have no reason to believe that any other employee benefited,” Hepner said. “We are focusing on every role and system that touches financial matters and have begun making process and personnel changes.”

Not lost in any of this was the recent turmoil at the ASO, the most financially distressed Woodruff division. With a $5 million annual shortfall, management projected $20 million in accumulated debt if nothing changed.

In September, the musicians ended a bitter month-long lockout by signing a two-year collective bargaining agreement in which compensation was reduced by $5.2 million over two years.

Paul Murphy, president of the ASO’s Players Association, said the cuts were a huge sacrifice by all the musicians, who are now watching the Woodruff’s next move closely.

“Every dollar donated … is important to our financial success and artistic viability,” Murphy said.

Hepner said the incident was contained within the Woodruff Arts Center administration.

“The divisions are not believed to be have been, and are not expected to be, significantly impacted,” she said.

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