Fraud: How to Get Your District Free Publicity

Transcription

1 APRIL 13-16, 2016 Fraud: How to Get Your District Free Publicity THESE MATERIALS HAVE BEEN PREPARED BY NIGRO & NIGRO, PC THEY HAVE NOT BEEN REVIEWED BY STATE CASBO FOR APPROVAL, SO THEREFORE ARE NOT AN OFFICIAL STATEMENT OF CASBO

2 Agenda Is fraud really a problem? How do we know if we re being ripped off right under our nose? What are some areas where we could be vulnerable? 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 2

3 Is Fraud Really A Problem? Statistics from the ACFE 2014 Report to the Nations: Typical organization loses 5% of its annual revenue to fraud! Median loss was $145,000 22% of cases involved loss of > $1 million Median duration of the fraud was 18 months Small organizations were disproportionately victimized Government and public administration is in the top three most victimized industries for fraud CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 3

4 But We Have An Annual Audit Audits are not designed to detect fraud they are to render an opinion on the District s financial statements Auditors make inquiries about fraud and consider the risks of fraud, BUT Audits, even those of the highest quality, provide only limited assurance 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 4

5 How Fraud Is Detected (Source: 2014 ACFE Report to the Nations) Anonymous Tip Management Review Internal Audit Accident Account Reconciliation Document Examination External Audit Surveillance Monitoring Law Enforcement IT Controls Confession Other 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 5

6 But We Have Good People More than 85% of fraudsters in the ACFE report had never been previously charged or convicted for a fraud-related offense. About 77% of the frauds in the study were committed by individuals in one of six departments: accounting, operations, sales, executive/upper management, customer service, purchasing, or finance 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 6

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8 What Are the Red Flags? The Cressey Fraud Triangle Perceived Opportunity Incentives or Pressures Rationalization

9 Red Flags Opportunity No special knowledge and skills needed, only those needed to do their job Deficiencies in Internal Control Motivation Financial pressures Revenge for unfair treatment 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 9

10 Red Flags Rationalizations Essentially non-criminal I was just borrowing the money. I was going to pay it back. Justified I deserved that money. I ve been underpaid for years, or They have so much money they won t even miss the little bit that I took 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 10

11 Where Are We Vulnerable? 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 11

12 Fraud Headlines School district worker sentenced for embezzling $350,000 A Tazewell County Public Schools employee is going to prison for embezzling more than $350,000 from the school system. Between 2007 and 2014, she diverted checks from school system retirees for insurance payments, plus money from school activities like cheerleading and bake sales, to her personal checking account. Willie Kathy Hicks of North Tazewell was sentenced to 35 years, with 30 years suspended, so she ll serve five years. Hicks also has to pay $359, in restitution to Tazewell County Public Schools CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 12

13 Cash Receipts Theft of cash at point of receipt is known as skimming and can occur at the District Office or at the school site level Child care programs Cafeteria and a-la-carte sales (more later) Adult education program fees ROP/CTE class fees Bus pass fees Developer fees Lost textbook fees Retiree benefits 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 13

14 Cash Disbursements Disbursement schemes are the most common Fictitious vendor or invoice schemes Consulting invoices Check tampering Forge signature Alter payee or amount Forge endorsement 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 14

15 Cash Disbursements Reimbursement schemes Mischaracterized expense reimbursements Overstated expense reimbursements Fictitious expense reimbursements Multiple reimbursements Travel and expense reimbursements are a common target for such fraud 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 15

16 Fraud Headlines Former payroll manager of Shelby Co. Public Schools accused of stealing from district The former payroll manager of the Shelby County Public Schools was arrested just days after she was indicted for allegedly stealing $590,000 from the school system. According to the indictment, the crimes took place from March 2007 to March Police say Benita Anglin used a former employee's identity to steal the money CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 16

17 Payroll & Benefits Ghost employee schemes Falsified hours & salary Terminated employees Vacation and sick leave schemes Benefits fraud schemes Ineligible dependents 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 17

18 Inventory & Equipment Stealing inventory, equipment, or supplies from warehouse For personal use For sale in personal business or pawn Theft of surplus items Personal use of District equipment computers, equipment, etc CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 18

19 School Accountant who was caught stuffing nearly $2 million in lunch money into a bag and her bra is sentenced to 5 years CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 19

20 Food Services Cash receipts theft At school site level by cashier At school site level by site manager At District Office level by supervisor Catering events Lack of cash receipts or inventory records Inventory Theft of food items for personal use or resale 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 20

21 Recent Headlines First sentencing in corruption scandal A former School District superintendent who threatened to withhold the awarding of contracts unless he received political contributions was sentenced Tuesday to two months in federal prison, fined $5,000 and ordered to perform 120 hours of community service. A former School District superintendent was sentenced Friday to nearly eight months in jail for his role in a pay to play scandal and political corruption probe CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 21

22 Purchasing Collusion with vendors Kickback schemes Overbilling schemes Fraud by vendors Bid rigging schemes Bid splitting Bribery and corruption schemes Conflicts of interest 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 22

23 Facilities Fraud by vendors See previous slide corruption, bribery, and kickback schemes Construction management (CM) firms may collude with contractors on overbilling schemes CM contracts may have hidden charges Pay for inferior work 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 23

24 Credit Card Headlines Ousted Adult Education Coordinator pleads guilty to six felony counts for stealing $413,000 from the Monroe County School District In October 2009, she was charged with using her school district credit card to purchase $220,701 worth of items that auditors found were not used for legitimate purposes. The eclectic list of thousands of items included a chandelier, groceries, patio furniture, pink ties, and a ride me cowboy lingerie outfit. ABC7's Watchdog reported earlier this month that board member and the employee in charge of approving credit card expenses had made a number of personal charges to their school district issued American Express cards 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 24

25 Credit Cards Personal expense reimbursements Travel, gifts, entertainment, etc. Unauthorized use of credit cards Gas, cash advances, equipment 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 25

26 Maintenance & Operations Includes groundskeepers, janitors, painters, electricians, plumbers, and handymen Employees have access to vehicles, equipment, tools, materials, and supplies, often with little or no accountability Personal use of District assets Time theft 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 26

27 Transportation Includes bus drivers, mechanics, dispatchers, and supervisors Employees have access to equipment, tools, materials, and supplies, often with little or no accountability Tools and parts are easily stolen One fraud involved ordering parts for a side-business and making bogus repairs Gas pump fraud if on-site pumps 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 27

28 Fraud Headlines Man charged for role in stealing $3.3 million from Cuyahoga Heights schools (Ohio) As IT director for the Cuyahoga Heights School District, Joseph Palazzo submitted fake invoices for shell companies. Those companies were operated by his brother, David Donadeo and Dennis Boyles CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 28

29 Information Technology (IT) Employees have access to technology equipment, materials, and supplies, which can be stolen for: Personal use Use in a side business Resold for cash Employees can abuse their purchasing authority to authorize payments to shell companies 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 29

30 Fraud Headlines Janesville police release details in Craig High School embezzlement case Jessica Warner Reed stole more than $300,000 while she was the banker for Janesville Craig High School from 2006 to 2015, police believe. The money she stole paid Warner Reed's housing expenses, clothing, furnishings, pet care and taking care of the family, but no obviously extravagant spending Warner Reed took some of the money in cash, but in 10 instances, she forged checks, made payable to herself or her husband CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 30

31 ASB Fraud Cash receipts schemes Cash disbursement schemes Inventory schemes Prevalent due to nature of ASB activities in middle and high schools Perpetrators can include: Principals, Other Administrators, Coaches, Advisors, Teachers, Secretaries, Accountants, and even Students 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 31

32 What Can You Do? Nearly 75% of frauds were detected by tips, management review, and internal audits Encourage tips Anonymous reporting hotlines Training of employees Robust whistleblower protection policies Organizations with fraud reporting hotlines suffered less costly frauds and detected the frauds 50% more quickly Management review of transactions Internal audit staff or subcontract out 2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 32

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