Tuesday, October 17, 2023

Former HumCo Fair Bookkeeper Indicted for Alleged 'Ghost Payroll' Scheme

Posted By on Tue, Oct 17, 2023 at 10:17 AM

A federal grand jury has indicted the Humboldt County Fair Association's former bookkeeper on five counts of wire fraud stemming from an alleged embezzlement scheme that prosecutors believe saw her reroute hundreds of thousands of dollars from the association and another local nonprofit to her personal accounts in 2021 and 2022.

Nina Tafarella, who oversaw the association's financial records from February of 2021 until her Nov. 15 arrest at a local casino, has not yet entered a plea in the federal case. The Eureka Police Department began investigating Tafarella after a nonprofit dance studio in Eureka where she'd worked as a bookkeeper found irregularities in its books. EPD obtained a warrant for Tafarella's arrest and notified the fair association, where Tafarella still worked, spawning a review of the association's finances, which quickly found discrepancies. Tafarella was never charged locally following her arrest, with officials saying the case had been handed over to the FBI.

Attempts to reach Tafarella, 47, for this story were unsuccessful.

The indictment alleges Tafarella defrauded the association of approximately $430,000 over the course of about 21 months after using a similar scheme to embezzle approximately $23,400 from the Eureka nonprofit, identified in the document only as "Victim Organization 1."

According to the indictment, the pattern began in April of 2021 at the Eureka nonprofit, where Tafarella began entering "fake bills to herself as a vendor" and would then issue checks to "pay" the bills, which she would then deposit in her U.S. Bank account.

"Tafarella had access to Victim Organization 1's checks, including pre-signed batches of checks," the indictment states, alleging that some checks recovered through the investigation also "had forged signatures."

Tafarella would then allegedly manipulate the nonprofit's QuickBooks accounts to hide the transactions, replacing her name with that of a different vendor or changing the value of the transaction to $0. She also allegedly altered bank statements with white-out.

"In addition to manipulating the QuickBooks accounts, Tafarella instructed Victim Organization 1 employees to rely only on the QuickBooks documents rather than bank account statements," the indictment states. "Tafarella told Victim Organization 1 employees that the bank statements did not reflect all the deposits and payments and were therefore less accurate than the manipulated QuickBooks records."

The indictment goes on to allege, "Tafarella used the money she received from Victim Organization 1 on personal expenditures, including Amazon purchases, restaurants and gambling."

In the course of her embezzlement scheme, the indictment alleges Tafarella transmitted "by means of wire and interstate foreign commerce" writings and other "signs, signals, pictures and sounds" that aided her fraud.

"These wire transmission included those made when she deposited checks into her U.S. Bank accounts at ATMs in the Northern District of California, and U.S. Bank routed these funds through its servers in Kansas and Minnesota," the indictment states.

Though it reportedly began similarly to the one in Eureka, the scheme to embezzle from the Humboldt County Fair Association, as laid out in the indictment, was more complex and allegedly far more lucrative.

After her hire with the fair association, which is identified in the indictment as Victim Organization 2, the indictment alleges Tafarella began doing the same thing she did in Eureka — issuing fraudulent checks to herself, or her company Clean Books Now, and then manipulating QuickBooks entries to make it seem the payments were made to a different vendor. She then deposited the checks — allegedly totaling $6,983.75 — into her bank account.

Tafarella then "continued her fraud ... by devising and implementing a new 'ghost payroll' scheme to defraud Victim Organization 2 out of more money and transfer the money to herself," the indictment states, specifying that she created fake employees in the accounting software.

"Tafarella often used fake employee names that were similar to real employee names by adding the middle initial of 'J' to an otherwise real employee name," the indictment states, adding that the fake employees listed in QuickBooks — at least seven of them — were all linked to Tafarella's bank account. "Towards the end of the scheme, Tafarella started entering fake payments under the name 'Internal Revenue Service EFTPS,' which was linked" to her bank and PayPal accounts.

To conceal the fraud, in addition to making false entries into QuickBooks, the indictment alleges Tafarella altered the records to add fake social security numbers — "many of which were 111-22-333" — altered journal entries, reported fake payroll employees to the State of California and the IRS, and created fake financial reports.

"Tafarella was responsible for creating financial reports that were presented to the Board of Directors of Victim Organization 2," the indictment states. "Tafarella would send some of her reports in Excel format rather than auto-generating them in QuickBooks. These reports were sent to the Finance Committee, who then presented the reports to the Board of Directors. The reports contained materially false and fraudulent information, including overstating the balance by approximately $346,000. In total, Tafarella sent herself approximately $404,298.07 in ghost payroll payments for which Victim Organization 2 paid approximately $20,681.73 in payroll taxes."

Again, the indictment alleges Tafarella used the embezzled funds "on personal expenditures, including Amazon purchases, restaurants and gambling."

While the indictment alleges a far-reaching embezzlement scheme comprised of dozens and dozens of false payments and fraudulent accounting entries, the wire fraud counts are specific to five wire transfers — two from the Eureka nonprofit's accounts and three from the fair association's accounts — to her U.S. Bank account totaling $13,450.64. All were alleged in violation of Title 18, United States Code, Section 1343.

Each count carries a maximum sentence of 20 years in federal prison, a fine of up to $250,000 or both, if convicted. The U.S. Attorney's office is also seeking the forfeiture of all property "derived from the proceeds" of the fraud, or a forfeiture judgement of $456,911.47.

The judgement would allow prosecutors to seize "substitute property" in the event the embezzled funds — or what was purchased with them — cannot be located, have been transferred to a third party or have been "substantially diminished in value."

According to court documents, Tafarella has been subpoenaed to appear in federal court in San Francisco for an initial appearance in the case Nov. 1. Attempts to reach a spokesperson for the U.S. Attorney's Office of Northern California to comment on the case were not immediately successful.

Tafarella's indictment nearly a year after her local arrest comes as the Humboldt County Fair Association continues to untangle the financial mess allegedly discovered after her departure and put new safeguards in place against future fraud. Most recently, at its meeting earlier this month, the fair board approved the resubmission of its 2021 IRS Form 990 with the inclusion of a $103,026 line item for payroll fraud.

Attempts to reach fair association board President Andy Titus and Interim CEO Jill Duffy for this story were not immediately successful.

Thadeus Greenson (he/him) is the Journal's news editor. Reach him at (707) 442-1400, extension 321, or [email protected].

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Thadeus Greenson

Thadeus Greenson is the news editor of the North Coast Journal.

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