New sign construction presents an opportunity for fraud. Last week out of home executives Don MacCord and Shannon Doyle were arrested and charged with defrauding Digi Outdoor Media investors out of $2.3 million.  Here’s how MacCord and Doyle alledgedly ran the scam.  The details come from an SEC lawsuit and FBI indictment against MacCord and Doyle.

• MacCord and Doyle helped Digi Outdoor Media raise $4.5 million from 60 investors throughout the United Stated by issuing 25% promissory notes.
• MacCord and Doyle formed Signworks, LLC.
• Signworks created false invoices which it submitted to Digi Outdoor Media  for sign construction and installation work Washington DC properties.
• Digi Outdoor Media transferred $3.6 million to Signworks, LLC. of which at least $2.3 million was used to pay MacCord’s personal expenses and to fund Doyle’s other businesses.  Some of the items included
  • $20,000/month in rent for MacCord’s Southern California mansion
  • nanny and housekeeping services for MacCord’s family
  • private school tuition;
  • payments on a Land Rover given to McCord’s wife as a gift
• Digi Outdoor Media forged 13 site leases and attempted to use the leases to convince another out of home company to enter a joint venture.

What can you do to protect yourself from employees or unscrupulous contractors who try to defraud you? Here are 6 steps you can take.

Write the checks yourself.  Fraud occurs when someone besides the business owner controls the checkbook.  MacCord and Doyle had full run of the company with no one looking over their shoulder.  Even if you don’t write all the checks yourself you should have full access to the bank statements and you should let your managers and employees know that you check the bank statements periodically.

Use an independent, reputable fabricator and installer with a track record.  There are plenty of independent sign fabricators with outstanding reputations.  Selective Structures, Profab and RMG come to mind.  Look for OAAA or IBOUSA associate members.  The fabricator and the installer need to be independent.  Be suspicious of new sign companies or fabricators without extensive business documentation.   MacCord and Doyle allegedly defrauded their investors by forming a sign company which they owned to bill for development and construction.  Insider checked Signworks initial formation docs at the Washington Secty of State and no Signworks officers were listed.  Signworks, LLC. had no website.  This should have raised red flags.

Use a reputable digital sign manufacturer.  Anthem, Daktronics, Formetco, Lightking, Media Resources, Panasonic, Watchfire.  Reliable manufacturers with a history and a concern about protecting their name.

Be suspicious of accellerated growth.  Most of the fraud Insider sees involves the fast development of a large number of our of home signs.  Fraud and complexity go together.  At one point Digi Outdoor Media claimed to be developing 76 sites involving 14 leases. It’s hard to spot fraud which occurs when lots of sites are being developed simultaneously.  It’s easier to spot fraud involving a single sign.

If a deal seems to good to be true it’s probably a fraud.  MacCord and Doyle offered investors two year 25% promissory notes.  Should have raised huge red flags.

Require Audited Financials.  Audited financial statements may not prevent fraud but they increase the chance a fraud will be spotted.  Audited financial statements require an accounting firm to independently confirm several aspects of a company’s financials (e.g. payables, receivables, material agreements).  It’s a big red flag if an auditing firm resigns or is fired.  Digi Outdoor Media fired its auditor after the auditor insisted on sending confirmation letters to landlords to confirm that leases were valid.  This should have been a red flag for investors.

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