Fraud It Can Happen To You

1
Fraud It Can Happen To You

• CMTA Conference
• Presented by Joe Aguilar
• Vavrinek Trine Day Co., LLP

2
Credibility Is the Greatest Loss

• Loss of Credibility with Elected Officials
• Monetary losses
• Dismissal of Employees
• Staff Time for Investigations
• Respect from subordinates

3
Fraud Breakdowns Median Loss

• Cashiering 18,000
• Payroll 90,000
• Expense reimbursements 92,000
• Check tampering 155,000

4
How Do You Catch Fraud

• You catch fraud by looking for it
• 60 of incidents uncovered by accident or by tip
• Next largest method of uncovering fraud was
  internal audit at 24

5
Profiling of a Fraudster

• 83 of perpetrators had no criminal history
• 46 of perpetrators had tenure of 6 years or more
  with employer
• The more educated a person is, the more they will
  steal from you
• Nice Shoes

6
Three Goals For Handling Fraud

• Obtain Restitution
• Fire the Employee
• Prosecute the Employee

7
How About That Computer Interface

• Employee in charge of downloading timesheets
  added their own overtime
• No One checking the overtime report
• Caught by accident
• Lesson Learned
• Trust but Verify

8
Lesson Learned, Case 1

• Think through your interface procedures
• Payroll needs to check overtime authorizations
• Knowledgeable manager needs to check overtime
  reports
• Do not use signature stamps

9
Finance Director Skims Cash

• Finance Director wore all the hats
• Records in disarray
• Director re-wrote the deposit slips
• What about that tow truck money?
• Management letter warned the City
• Lesson Learned
• Separate the duties
• Track the daily deposits

10
Lesson Learned, Case 2

• Have an action plan for your management letter
  findings
• Keep bank deposits together for bank delivery
• You must have rules for the delivery of cash
• Someone independent needs to verify daily
  deposits
• If you cant separate the duties, then outsource
  your work

11
Good Systems Dont Stop Fraud Good Management
Does

• City had top notch registration system
• Recreation Manager stole money anyway
• Perpetrator worked outside the system
• No Fee Class became a gold mine
• Sting operation caught the perpetrator
• Lesson learned
• Dont assume it cant happen
• Standardize your cash collection
• Train all of your staff

12
Lesson Learned, Case 3

• Most difficult situation to prevent
• Collusion with another manager hid situations
• Follow your instincts Where there is smoke,
  theres usually fire
• Act quickly and deliberately
• Sometimes a sting operation is the best option
• Whistle Blower system is the last defense

13
A Few More Exposures

• Ghost employees at a school district
• Cashier borrows money overnight
• Easement payments hand delivered
• Finance director used old bank account
• Bank stops a wire transfer
• The salvaging employee

14
Things to Check Up On

• Cash Registers and Z out tapes
• Bank Reconciliations Proofs of Cash
• Count the cash drawers
• Once a year, have people pick up their paychecks
• Audit one payroll per year
• Anybody holding checks?

15
Slackers Rule the Fraud Race

• Lack of management oversight
• Lack of separation of duties
• Lack of independent checkpoints
• Lack of procedures
• Lack of training
• Lack of authorizations
• Lack of documentation for transactions
• Accounting system in disarray

16
General Exposures to Fraud

• Large amounts of cash on hand
• Poor physical safeguards
• Proliferation of credit cards
• Hand written receipts
• Ease of conversion of assets

17
Tools to Reduce Fraud

• Start with a Integrity Policy
• Internal audits
• Outsource Functions
• Manage By Wandering Around
• Involve policy makers in controls
• Operational Management Audits
• External Audits