Page 20 - The Edge - Fall 2019
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LACK OF INTERNAL CONTROLS
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“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