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Arizona Association of School Business Officials

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

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Arizona Association of School Business Officials

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  1. Arizona Association of School Business Officials Winter Conference February 2, 2010

  2. Dealing with the Ugly Face of Fraud Holly Frook Graham, CPA, CFE Arizona Office of the Auditor General

  3. 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

  4. Auditor General Investigations • School districts • Counties & elected offices • State agencies • Fire districts • Community college districts • Universities • Justice courts • Other entities

  5. 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

  6. Auditor General Investigations

  7. 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

  8. Conflict of Interest Mother & Grandmother Husband Half-brother & his wife You Daughter & Grandson Husband’s father. Husband’s sister & her husband Step-son

  9. Is it fraud? Managerial problems Internal audit concerns External audit issues Other circumstances

  10. Money or property missing Money loaned or gifted Credit cards misused Conflicts of interest Undisclosed information Abuse of authority Classic Fraud Conditions

  11. Which Situation is Fraud? • Check and cash deposits made late • Unauthorized payments to individuals • Administrators’ trips to Vegas • Credit card MIA

  12. 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

  13. 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

  14. Stealing more than $1,700 worth of gas

  15. 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

  16. Suspected Fraud Fraud doesn’t need a smoking gun Sometimes, fraud is something that just doesn’t look good

  17. 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

  18. 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

  19. 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

  20. 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

  21. 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

  22. 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

  23. Suspect Fraud? • Go up the ladder • Restrict access • Conduct preliminary interview • Document everything • Seek assistance Do This First

  24. 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

  25. 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

  26. Resources • Arizona Auditor General azauditor.gov • Arizona State Legislature – statutes azleg.gov/ArizonaRevisedStatutes • Association of Certified Fraud Examiners acfe.com

  27. Questions?

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