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A Fraud Case Study: Dane Cook and Darryl McCauley

Gusto Editors  
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As an accountant, it’s essential to be aware of the different types of fraud and the different ways we detect them.

Gusto, along with our partners at CPA Academy, delivered an informative webinar all about fraud, diving into fascinating fraud case studies. It was titled, “Fraud: Steinhoff’s Overstated Profits and Dane Cook’s Embezzling Half Brother.” We featured the accounting and fraud expertise of Greg Kyte, founder of Comedy CPE, and Caleb Newquist, editor-at-large at Gusto. You can watch the entire webinar here

In addition to this article, which is Part Three of this webinar series, you can also read Part One and Part Two to learn all about Markus Jooste, the ex-CEO of Steinhoff International.

This article will inform you all about an extreme and fascinating case of asset misappropriation. You’ll also learn about different fraud statistics compiled by The Association of Certified Fraud Examiners (ACFE). 

Cash larceny case study: Darryl McCauley

Darryl McCauley was responsible for defrauding his half-brother, Dane Cook. Dane Cook is a celebrity comedian, and he hired Darryl as a business manager. Darryl stole at least $12 million from Dane, but the number may actually be much greater:

“Dane Cook says [Darryl McCauley] stole tens of millions of dollars from him, but the 12 million comes from the actual court proceedings where that was what they determined in court that he had stolen. There’s a high likelihood that the real losses are higher than the official losses from the court cases.”

Greg Kyte

What’s especially notable about the case is the amount stolen. The sum greatly exceeds the median amount of losses from cash larceny cases, which is $83,000. The ACFE defines cash larceny as “the intentional taking away of an employer’s cash without the consent and against the will of the employer.” Darryl McCauley worked for Dane Cook, so his asset misappropriation falls under the category of cash larceny. 

The fraud was so blatant and significant that he even forged a check for $3 million made out to himself from Dane Cook’s account. The median amount of money stolen through payment tampering is $110,000, so this is an extreme example of tampering. 

Although the cash larceny officially occurred for at least four years, according to Dane Cook, his half-brother stole money for decades:

“[The court] did find out that he was stealing money from 2004 to 2008, but again, that’s the official [number]. Dane Cook said he was stealing money for decades. From the ACFE info, only 5% of frauds last that long. … It’s even less for asset misappropriation. When you look at check tampering, it’s usually only about a year, and when it’s a larceny fraud, it’s less than a year.”

Greg Kyte 

How the Darryl McCauley case came to light

Dane Cook didn’t become aware of his half-brother’s theft until he decided to hire a new business manager.

“When [Dane Cook] moved to California, he was like, ‘Hey, … I think I need a real manager when we’re talking about multi-million dollar movie deals and not just performing in club[s], so he hired a new manager once [he] relocated to California. The new manager was trying to get information from the old manager, which was Darryl. Darryl was [giving] massive pushback to the new manager, and the new manager was like, ‘This is really weird. What’s happening?'”

Greg Kyte

When he came to the realization that Darryl was stealing from him, Dane went to his bank and discovered that he didn’t have access to his own accounts:

“[Dane Cook] heads down to the Bank of America, where his accounts were located. He didn’t even have access to his own accounts, even though they [were] his accounts. Apparently, there was a bit of red tape you had to get through to even get access to his accounts. Once he got in there, [the bank employees informed him], ‘Oh, Mr. Cook, there’s $0 in your business accounts.'”

Greg Kyte

Once Dane Cook discovered the issue with his accounts, he realized that his half-brother was sending him fake bank statements. According to Dane, Darryl had been sending him forged bank statements for decades. 

Ultimately, Darryl McCauley pled guilty to 27 counts of different types of embezzlement. In 2010, he was sentenced to six years in prison with 16 years probation. He was also required to repay $12 million to Dane Cook. 

Another bizarre detail about the case is that Dane Cook had to pay taxes on the stolen money. Once he recovered his money, the IRS claimed that he had made more money for the year than he had reported, so he had to pay taxes on his stolen funds. 

This case offers an extreme example of cash larceny committed by a business manager.

ACFE fraud statistics

The Association of Certified Fraud Examiners (ACLE) offers many fascinating statistics regarding fraud that are relevant to the Darryl McCauley case. Although Darryl McCauley’s larceny may have gone on for decades, he was eventually charged for it. The ACFE found that 40% of cases of asset misappropriation go unreported:

“With the most recent [ACFE] Reports to the Nations, they said that about 60% of cases are reported to law enforcement, but that’s still a bit shocking because they’re stealing stuff, [and] they’re breaking the law.”

Greg Kyte

On top of the staggering statistic that many cases go unreported, only half of the defendants of asset misappropriation cases plead guilty.

The ACFE also provides statistics regarding fraud detection. The different types of detection include tips, internal audits, management reviews, accidents, account reconciliations, external audits, document examinations, surveillance, notification from law enforcement, IT controls, confession, and “other.” Greg noted that fraud is most likely detected by a tip, which makes up 43% of discovered fraud cases: 

“Fraud is most commonly detected by tips, which you probably know. That’s why one of the most basic fraud control measures is to have a tip hotline at your company. … 4% of the time, fraud is detected by an external audit. That’s not too surprising because in all of our engagement letters, we say, ‘Hey, in this audit, we’re not looking for fraud. We’re going to try to find it if it’s there, but that’s not the purpose of this whole thing.'”

Greg Kyte

Fraud is most commonly found out because of tips, but in the case of Dane Cook and Darryl McCauley, there were so few parties involved that it took years for an issue to come to light. Darryl stole from Dane for at least four years, but the extent of the fraud likely lasted much longer. The exact classification of how this fraud was discovered is debatable:

“One of the things that’s a little hard to define [in] this case is how the fraud [was] detected. Was that an accident that he just happened to hire a new manager? … [You could] classify that as an ‘accident’ or classify that as ‘other.’ … 5% of frauds are detected by an ‘accident,’ [and] 6% are detected by ‘other.’ Anyway, you look at that, [and] 5% or 6% is greater than 4% [which is the percentage of external audits]. Basically, what we’re trying to say is that fraudsters are clearly dumber than external auditors are good at finding fraud.”

Greg Kyte

External audits make up a negligible percentage of how fraud is detected. Darryl McCauley’s behavior was discovered by accident, and if Dane Cook hadn’t hired a new business manager, Darryl could have potentially continued practicing occupational fraud for several more years. 

Learn more about fraud and fraudsters

The Darryl McCauley case offers an extreme example of asset misappropriation, and it exemplifies how fraud can often go undetected for years. As an accountant, it’s crucial that you’re able to advise clients and keep them cognizant of risky situations, including potential exposure to fraud. 

If you want to learn more about fraud, fraud statistics, and the ACFE, read Part One and Part Two of this webinar article series. You can also watch the entire webinar here

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