Kyoshi Hatanaka

Kyoshi Hatanaka, 52, of Aliso Viejo, and former finance director and chief investment officer (CIO) of Soka University of America has been sentenced to 37 months in federal prison for embezzling more than $1.7 million of Soka funds according to US Department of Justice press release 08-145 issued October 28, 2008.

Hatanaka was also ordered to pay $1,756,000 in restitution to Soka.

As originally reported in the Orange County Register, university spokeswoman Wendy Harder stated Hatanaka had worked for a Big Seven accounting firm prior to becoming Soka’s finance director in 1990.

According to prosecutors, as finance director and, later as CIO, “Hatanaka had access to Soka’s bank accounts and investment accounts …and had responsibility for managing Soka’s investments.”

From 1999 to early January 2006, Hatanaka withdrew $1,756,000 from Soka’s accounts and moved the money to sham Soka accounts at California Bank & Trust. From there, he withdrew large sums of money for personal use and gambling at casinos in Temecula and Las Vegas.

Prosecutors said that the bank became concerned over transfers among accounts that had not been approved by more than one person and notified Soka, which, in turn, notified federal authorities. According to the university spokeswoman, Soka had hired a new CFO in 2005 who instituted a number of internal control procedures, one of which was to require multiple signatures and approvals on bank transfers.

 

Lesson #1: Appears to be a classic case of lack of or weak internal control. Of course, this was the guy that was supposed to oversee everything. $1.7 million? Where did he hide that in the books? Was he also the bookkeeper?

 

Lesson #2: Get to know your employees, especially the ones handling the money and the books. What was his lifestyle like? How was he able to gamble all that money away over 7 years without arousing suspicion?

 

Lesson #3: I suspect he came highly recommended from a Big Seven accounting firm. No one should be above following the rules (provided the rules are in place).