Institute of Management Accountants Mid-America Council Bob Grogan, CPA, CFE Government Fraud April...

Institute of Management

Accountants Mid-America Council

Bob Grogan, CPA, CFE

Government FraudApril 25, 2014

Office of the DuPage County Auditor

Historic Fraud

Anyone ever hear of Dixon Illinois?

In 1983 Rita Crundwell was appointed the treasurer-comptroller for city. She had a great reputation; for instance in 2011 one of the city commissioners praised Crundwell for her stewardship of city finances, saying:

"she looks after every tax dollar as if it were her own."

Historic Fraud

Stole $54 million Bank and Accounting Firms settle

for $40 million Rita sentenced to 20 years Looking for Bank Accounts Follow the MONEY Untold story about the Levy

Something different about Government

Government FraudDisclaimer

The following are examples of suspected fraud

Final proof of fraud is a matter for the courts

Audit FindingsAsphalt Repairs


4 companies bid for work Contract awarded to low

bid Prices based on area and

thickness of asphalt patch

Less than 4” = $12.95

More than 4” = $2.25


Thin patch = $12.95

Thick patch = $2.25

Un-balanced pricing, more material was less money, per square foot


Supervisor was friend of company owner

Auditor interviewed staff

Supervisor authorized payment of invoices


The invoice prices did not agree to the bid

More than 4” should be $2.25

Invoice price is $12.95 On this invoice, vendor

overcharged $22,555


The auditor identified other erroneous invoices

Auditor refused to approve several other invoices totaling $65,000

The vendor went to court seeking payment County refused payment Vendor dropped lawsuit, went out of

business County HIRED the foreman!

Audit FindingsRepair Work

Begins with a clerk noticing “INVIOCE” spelled wrong

Repair/replace siding on building Not bid, three quotes Investigation shows business address is a

residence Problem? Unusual – no Social media search


Social media search Owner is engaged to staff member daughter

Staff member worked overtime on weekend to “supervise” the job

Materials’ receipts were paid for by staff member

Vender payroll showed no payments to 2nd laborer


Withheld final payment Rationale “Laborer might come back to be paid”

Owner charged with operating a business without a license

Employee suspended

Audit FindingsAUDIT HOTLINE

“I didn’t know who to tell” Expands information

collected Anonymous Inexpensive New Hires Lunch Room

Audit FindingsWelfare Fraud

Recipient claimed that father/husband was not in home Investigation showed father

still lived with family Conviction for fraud

Recipient listed neighbor’s address Husband using

home address Actually living

together

Receiving more tips from the Audit Hotline about potential welfare fraud.

Audit FindingsCapital Equipment Purchase

Replacement aeration equipment used to purify waste water was needed by the Public Works Department

A bid for 3 turbo blowers used in the aeration process was prepared


4 vendors responded to the bid The lowest cost bids were

disallowed because the Department wanted parts unique to one vendor brand

The specific brand was not a mandatory requirement in the bid specifications

The highest bid was selected to win the contract


The County Auditor became aware of allegations of wrongdoing by the Public

Works Department in preparing and awarding the bid.


The salesman represented several equipment vendors

The salesman assisted in writing the bid specifications

Only the salesman’s clients had a likely chance to meet the bid specifications

The allegations included:


The audit investigation found: The allegations were true The salesman represented 6

County vendors There were 7 contracts with

the 6 vendors totaling over $2 million

6 of the 7 were subcontracts or no bid, sole source contracts


The County Auditor provided the results of the investigation to the Committee

The contract was awarded to the lowest bidder for $465,000

The County saved $75,000, and the bid process was fair to all bidders

A professional services (no bid) contract was awarded for construction documents for window replacement at the County nursing home

Audit FindingsArchitectural Services

The vendor’s fee was 10% of project cost, $190,000

The vendor would also oversee the construction


The contract required the vendor invoice to show the fee for each project phase and the percentage of phase completion

The contract required the vendor to provide actual payroll records and detail of reimbursable expenses related to the project


Pre-audit review of vendor invoices showed suspicious activity

The contractor did not install any windows when the vendor invoiced for construction observation

Vendor payroll records proved overbilling


$88,945, labor/costs invoiced to date

VENDOR RECORDS

595 hours worked on project

Average wage of $170 per hour

$25,000, actual labor costs and expenses incurred to date

Average wage of $99 per hour

247 hours worked on project

VENDOR INVOICE


The vendor was charging double the actual number of hours worked on the project

The County was invoiced for the most skilled employees but the work was actually performed by lower level employees

The County refused to pay the remaining $100,000, of the contract

Internet Information

DuPage County Auditorhttp://www.dupageco.org/auditor/

THANK YOU!

Contact Info:Bob Grogan, CPA, CFE

[email protected]

Ph: 630-407-6075

421 N. County Farm RoadWheaton, IL 60187

Institute of Management Accountants Mid-America Council Bob Grogan, CPA, CFE Government Fraud April...

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