NCI reveals more on embezzlement's impact

NCI Inc.’s now-completed investigation into the alleged embezzlement of company funds by its former controller has identified $19.4 million in stolen funds over nearly six years versus its original $18 million estimate, company executives told investors Wednesday.

Chief Financial Officer Lucas Narel said in the company’s fourth quarter earnings call that the timing is “uncertain at this point” on when NCI will be able to recover the lost funds.

NCI’s civil lawsuit against Frank filed in January and criminal investigations from government agencies will impact that timing, he said.

“Obviously, we're anxious to find out what that answer is ourselves. We’re hopeful that we can get some recovery in this year but that is just speculation at this point,” Narel said.

The insurance claims process will be an “even longer process” as NCI’s insurers await the outcome of both government investigations and the civil lawsuit, he added.

Both the Justice Department and Securities and Exchange Commission are investigating the alleged embezzlement. Frank is also under a grand jury investigation for potential indictment on wire fraud charges, a U.S. District Court affidavit says.

The U.S. Attorney’s Office in Alexandria, Va. is separately conducting a civil investigation into the potential impact of the embezzlement on NCI’s government contracts. NCI does not have an estimate of the financial impact from that investigation, the company said in its annual 10-K filing.

(UPDATE NCI offered this statement to Washington Technology via email April 8: “We are working with our customers to determine the extent of any potential reimbursements related to the embezzlement issue.”)

Frank is alleged to have falsified bank account statements and other documentation to make transactions “appear legitimate and circumvent the company’s controls,” according to an affidavit in U.S. District Court for Alexandria.

NCI discovered a discrepancy in its financial records in late 2016 and subsequently started an internal review. Frank admitted in a meeting with NCI leaders to using his position as controller to make payments into his personal checking account from NCI’s payroll account, the affidavit says.

A Virginia circuit court judge in Fairfax County, Va. froze Frank’s assets Feb. 2 and ordered him to give NCI an accounting of personal assets. Frank also must identify and return to NCI assets he “obtained wrongfully or acquired with wrongfully-obtained funds,” the company disclosed in a separate regulatory filing Feb. 13.

NCI believes Frank acted alone. Frank was employed at NCI from March 2000 until his firing from the company in January 2017 upon discovery of the alleged embezzlement.