270 likes | 412 Views
Arizona Association of School Business Officials. Winter Conference February 2, 2010. Dealing with the Ugly Face of Fraud Holly Frook Graham, CPA, CFE Arizona Office of the Auditor General. Objectives. In regards to potential fraud, participants will: Be able to protect their district
E N D
Arizona Association of School Business Officials Winter Conference February 2, 2010
Dealing with the Ugly Face of Fraud Holly Frook Graham, CPA, CFE Arizona Office of the Auditor General
Objectives • 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
Auditor General Investigations • School districts • Counties & elected offices • State agencies • Fire districts • Community college districts • Universities • Justice courts • Other entities
Auditor General Investigations • 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
Protect Your District • 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 Proactive against fraud Reactive after fraud
Conflict of Interest Mother & Grandmother Husband Half-brother & his wife You Daughter & Grandson Husband’s father. Husband’s sister & her husband Step-son
Is it fraud? Managerial problems Internal audit concerns External audit issues Other circumstances
Money or property missing Money loaned or gifted Credit cards misused Conflicts of interest Undisclosed information Abuse of authority Classic Fraud Conditions
Which Situation is Fraud? • Check and cash deposits made late • Unauthorized payments to individuals • Administrators’ trips to Vegas • Credit card MIA
Credit Card Example • 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
Credit Card Example • 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
Credit Card Example • $2,100 stolen for gas • Six month period • Employee terminated • No legal consequences • Money not repaid • $1,700 of gas stolen • Two year period • Employee arrested • Employee terminated • Plead guilty to theft • Restitution ordered School District County
Suspected Fraud Fraud doesn’t need a smoking gun Sometimes, fraud is something that just doesn’t look good
Financial Misconduct Example • 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
Financial Misconduct Example • 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
Financial Misconduct Example • 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
Financial Misconduct Example Office of the Auditor General: • Reviews external audit report • Sees findings of financial misconduct • Reviews pertinent documents • Conducts investigation • Submits report to Attorney General
Financial Misconduct Example Superintendent (former): • Pleads guilty to felony charges • Theft • Misuse of public money • Agrees to pay $84,981restitution • Forfeits certificates: • K-12 • Principal • Superintendent
Financial Crimes • Theft 13-1802 • Fraudulent Schemes 13-2311 • Misuse of Public Money 35-301 • Conflict of Interest 38-501et al • False Filing – Forgery 39-161 & 13-2002 • Procurement • 41-2616 & 15-213 • Antitrust • 34-252 & 44-1402 • Tampering • 41-1279.04 & .22 Criminal Civil
Suspect Fraud? • Go up the ladder • Restrict access • Conduct preliminary interview • Document everything • Seek assistance Do This First
Gathering Information • 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
Role of Auditor General Special Investigative Unit • Assesses potential fraud situations • Investigates fraud • Prepares confidential report for law enforcement • Assists in prosecution • Prepares summary report for entity, legislature, public • Conducts trainings
Resources • Arizona Auditor General azauditor.gov • Arizona State Legislature – statutes azleg.gov/ArizonaRevisedStatutes • Association of Certified Fraud Examiners acfe.com