Page 20 - The Edge - Fall 2019
P. 20

LACK OF INTERNAL CONTROLS
            CONTINUED FROM PAGE 18
                                                                         “She was able to get away
              What leads to fraudulent behavior usually needs three
            components: pressure, which is the motive for carrying out an   with it because of the lack of
            illegal act; opportunity, which usually involves a lack of internal
            control, and rationalization, which involves the person’s          internal controls.”
            values and their ability to make excuses for stealing, such as
            borrowing with the intention of paying it back, a feeling of   — Gretchen Augustine, Manager of the Auditor General’s Division of
            being overworked and not getting paid enough, and deserving               Financial Investigations
            of the money.
              Pressure is what causes a person to commit fraud. Examples
            may include medical bills or any type of addiction, including   admitting that she had committed fraud, and was terminated
            gambling, shopping, drugs and alcohol, Augustine said. It’s  by the Governing Board.
            usually people living beyond their means, according to the   The business manager was convicted of seven felonies
            Association of Certi  ed Fraud Examiners report.       and sentenced to 4 ½ years in prison plus probation, and was
              Opportunity for fraud is what AASBO members were told  required to make full restitution, Augustine said.
            they have the most control over. “If someone doesn’t have the      e investigative report recommended that district o   cials
            opportunity, it’s harder for them to commit fraud,” Augustine  should use a mail log at the district o   ce to document the
            said.    e Association of Certi  ed Fraud Examiners report states   collections through the mail, and subsequently compare the
            that 30% of the cases nationally stem from a lack of internal  log with the deposits and collections recorded.    e report also
            control, such as no segregation or access to blank checks.  recommended that the district conduct “independent and
              Fraud often starts small, perhaps as little as $10, but then,  detailed reviews of cash receipts and expenditures to ensure
            Augustine said, “It spirals out of control.”           that the monies are properly accounted for and appropriate,
              In one example, Augustine recalled an investigation that  and continue to maintain signed credit card user agreements
            revealed  that from November 2011 through August 2016, a   that outline the receipt of the district’s card use policies and
            business manager may have embezzled nearly $140,000 of   procedures, and train card users and employees involved with
            public monies when she issued school district warrants to  processing transactions.”
            herself and her credit card companies, kept payments made   Gill told of another case of fraud that involved a school
            by parents and others that should have been deposited in the  district business manager.    e person managed purchasing,
            district’s bank accounts, made personal purchases with district  payroll and annual reports. Forged statements were uncovered,
            credit cards, and gave herself an unauthorized payroll raise.   indicating purchases were made unrelated to the district’s
               e business manager may have also falsi  ed information in  needs.    e business manager resigned and reimbursed the
            district’s accounting software and Governing Board packets to  district for about $5,000, Gill said.
            conceal her actions, according to Augustine.             Once again, there was a lack of oversight by others and a lack
                 e business manager used district money to pay o   her   of separation of duties. “Don’t allow the card holder to receive
            personal credit cards and used her district credit card for  and review their own statements,” Gill said.
            personal purchases, Augustine said. “She was able to get away   In another case involving undeposited cash receipts, the
            with it because of the lack of internal controls,” Augustine said.  Auditor General’s investigative report recommended that
                 e Auditor General’s investigative report indicates the  district officials should “ensure issued receipt copies are
            business manager left work, emailed the superintendent  numerically accounted for and independently reconciled to
                                                                   district deposits, require employees to sign for and document
                                                                   the date and amount received each time money is transferred
                                                                   among employees, and consider conducting unannounced
               “Don’t allow the card holder to                     audits to verify that cash and check payments agree to cash
                                                                   receipt records.”
                                                                     Gill also recommended requiring employees in sensitive
                receive and review their own                         nancial positions to take at least an annual vacation.
                                                                     “Have someone step in for a few days to see what’s going
                            statements.”                           on,” she said.

                           — Nikki Gill, a Financial Investigator  Gretchen Augustine can be reached at: (602) 553-0333 or
                                                                   gaugustine@azauditor.gov.


                                                                   Nikki Gil can be reached at: (602) 553-0333 or ngill@azauditor.gov.



            20                                                                                    THE EDGE  |  FALL 2019
   15   16   17   18   19   20   21   22   23   24   25