Sherry Ann Allen stole more than $1.1 million from the Greater Eastern Credit Union by using a hidden transaction feature, knowing no one at the Johnson City, Tenn.-based cooperative reviewed hidden transactions, enabling her to move large sums of money into and out of accounts she controlled over seven years.
Earlier this month, the former president/CEO who joined the Johnson City, Tenn.-based credit union 30 years ago, signed an agreement with prosecutors to plead guilty to theft and income tax evasion. She admitted to using the stolen funds to pay for her credit card bills, her cars, her clothes, her jewelry, and she also funded cruises and trips for her church's youth group and credit union employees. Johnson also handed out expensive gifts to employees at GECU's Christmas party and at its annual picnic.
Johnson paid for all of this on an annual salary that ranged from $86,000 to $100,000 during her four-year tenure as CEO.
The alleged theft was initially exposed in February when the $55 million GECU took the highly unusual step of publicly disclosing that a forensic fraud investigation determined Allen stole more than $1 million.
The investigation was launched after GECU was contacted by the Johnson City Police Department that it received information regarding an “abnormality in the payment of a vendor,” according to court documents. The credit union's investigation initially determined Allen purposely and personally processed the vendor transaction in which $10,000 was transferred to an account she controlled. Then the credit union discovered there were additional suspicious transactions she processed in which funds were deposited to other accounts she controlled.
The credit union's board hired a certified forensic accounting firm to conduct a fraud examination. The FBI and IRS also became involved in the investigation.
According to court documents, Allen began stealing funds in 2011 after racking up credit card debt.
The former CEO stole money by altering the amount due on invoices to reflect a higher amount due than the actual lower amount that was due. After the credit union cut a check for the higher amount, Allen personally processed the check, paid the actual lower amount that was due to the vendor and then deposited the difference into her account.
Federal prosecutors revealed that Allen accomplished this by manually processing the payment and checking off a hidden transaction box. The hidden transaction box is legitimately used when an employee makes an inadvertent mistake such as depositing a check into a wrong account. Employees check off the hidden transaction feature after correcting a mistake in a timely manner so that the account holder would never know the error occurred. In addition, a hidden transaction would not show up on a member's bank statement.
Allen used the hidden transaction feature to divert funds to accounts she controlled and to ensure no one at GECU could detect the transactions. According to court documents, Allen knew no one at the credit union reviewed hidden transactions, which enabled her to move money in and out of accounts.
What's more, Allen and her family held multiple accounts, and she electronically marked these accounts as such. That meant those accounts would not be subject to review by any GECU employee, according to prosecutors. That allowed Allen to deposit and move large money transfers that would not be detected or reviewed.
In addition to paying off her credit cards, Allen used the stolen money to buy a car and pickup truck. She purchased a timeshare in Florida, a camper, clothes and jewelry. The stolen credit union funds were also used to pay for a cruise, trips to Arizona and Eastern Europe that she and her husband enjoyed, according to court documents.
Allen donated some of the stolen money for charitable causes such as her church's youth group mission trips to Ireland, Nicaragua (twice) and Florida. She also paid for vacation bible school items, gave stolen cash to people who needed groceries and purchased two cars for church members.
Moreover, court documents show that Allen paid for cruises and trips for GECU employees and bought expensive gifts, including cash gifts, for other GECU employees at the Christmas party and annual picnic. Some of the gifts included TVs, jewelry and outdoor furniture.
Because Allen failed to report the embezzled funds as income, as required by federal law, she was also charged with filing false and fraudulent joint tax returns from 2011 to 2016.
When appointed CEO in 2014, she was paid $85,415, $102,990 in 2015 and $99,317 in 2016, according to publicly available IRS 990 documents state-charted credit unions are required to file annually with the federal agency.
Her formal plea hearing will be held in June at U.S. District Court in Greenville.
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