Winter ConferenceFebruary 2, 2010
Dealing with the Ugly Face of Fraud
Holly Frook Graham, CPA, CFEArizona Office of the Auditor General
In regards to potential fraud, participants will:◦ Be able to protect their district◦ Know what actions to take when fraud is suspected◦ Understand fraud role of Auditor General
School districts Counties & elected offices State agencies Fire districts Community college districts Universities Justice courts Other entities
School district case range of losses◦ $2,322 - $11,725,425
School district case culprits◦ Student activities secretary◦ Department director◦ Assoc. superintendent◦ Governing board member◦ Business manager◦ Superintendent
Proactive against fraud Reactive after fraud
Create culture of integrity
Communicate expectations regularly
Hire quality people
Have strong internal controls
Maintain culture of integrity
Seek assistance
Support prosecution
Take remedial action
You
Husband
Husband’s father.
Husband’s sister & her husband
Mother & Grandmother
Daughter &
Grandson
Half-brother & his wife
Step-son
Managerial problemsInternal audit concernsExternal audit issuesOther circumstances
Money or property missing Money loaned or gifted Credit cards misused Conflicts of interest Undisclosed information Abuse of authority
Check and cash deposits made late
Unauthorized payments to individuals
Administrators’ trips to Vegas
Credit card MIA
External auditors-improve controls over cards
District called card company◦ 12 cards with activity◦ 4 of 12 cards can’t be found◦ $2,100 gas purchases ◦ July – December 2007
December 2007◦ Performs internal investigation
February 2008◦ Employee placed on leave (terminated July 2008)
March 2008◦ District contacts police department◦ PD = several suspects, no charges
January 2009◦ Audit Report = alleged misuse
April 2009◦ Auditor General informed of misuse through audit
report
Stealing more than
$1,700 worth of gas
School District
$2,100 stolen for gas
Six month period
Employee terminated
No legal consequences
Money not repaid
County
$1,700 of gas stolen
Two year period
Employee arrested
Employee terminated
Plead guilty to theft
Restitution ordered
Sometimes, fraud is something that just doesn’t look good
Fraud doesn’t need a smoking gun
Complaints to GB about superintendent:◦ Wife’s employment◦ Personally paid with IGA money◦ Unauthorized performance pay
GB contracts with investigative attorney
Attorney recommends:◦ Suspend superintendent◦ Review former employment file◦ Hire forensic CPA
Separation agreement with prior district required superintendent to:◦ Resign◦ Repay $9,300 of personal purchases◦ Pay investigation costs of $36,000
No legal action
Two weeks later applied for AZ superintendent position
District pays $15,369 for attorney investigation
District pays $54,977 to superintendent
Superintendent resigns
Forensic CPA not hired
Auditor General not contacted
Legal action not taken
Office of the Auditor General:
Reviews external audit report
Sees findings of financial misconduct
Reviews pertinent documents
Conducts investigation
Submits report to Attorney General
Superintendent (former):
Pleads guilty to felony charges◦ Theft ◦ Misuse of public money
Agrees to pay $84,981restitution
Forfeits certificates:◦ K-12◦ Principal◦ Superintendent
Criminal Civil
Theft 13-1802
Fraudulent Schemes13-2311
Misuse of Public Money35-301
Conflict of Interest38-501et al
False Filing – Forgery39-161 & 13-2002
Procurement41-2616 & 15-213
Antitrust34-252 & 44-1402
Tampering41-1279.04 & .22
Do This First
Go up the ladder Restrict access Conduct preliminary interview Document everything Seek assistance
Determine Who, What, Where, When and Why◦ Review documents first◦ Ask questions later
Document everything◦ Analysis◦ Timelines◦ Interviews, discussions
Be specific◦ Names and titles◦ Dates and times◦ Amounts and locations
Special Investigative Unit
o Assesses potential fraud situations
o Investigates fraud
o Prepares confidential report for law enforcement
o Assists in prosecution
o Prepares summary report for entity, legislature, public
o Conducts trainings
Arizona Auditor Generalazauditor.gov
Arizona State Legislature – statutesazleg.gov/ArizonaRevisedStatutes
Association of Certified Fraud Examinersacfe.com