So, What is Fraud? Plano ISD
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7/23/2014
So, What is Fraud?
Plano
l ISD
S
July 29, 2014
Definition of Fraud
• School Board Policy (CAA Local)
– Forgery or unauthorized alteration of a document
or account belonging to the District,
– Forgery of unauthorized alteration of a check,
bank draft, or any other financial document,
– Misappropriation of funds, securities, supplies, or
other District assets, including employee time,
17/23/2014
Definition of Fraud
• School Board Policy (CAA Local)
– Impropriety in the handling of money or reporting
of District financial transactions,
– Profiteering as a result of insider knowledge of
District information or activities,
– Unauthorized disclosure of confidential or
proprietary information to outside parties,
– Accepting of seeking anything of material
value from contractors, vendors, or others,
Definition of Fraud
• School Board Policy (CAA Local)
– Inappropriately destroying, removing, or using
records, furniture, fixtures, or equipment,
– Failure to provide financial records required by
state or local entities,
– Failure to provide financial records required by
state or local entities,
– Failure to disclose conflicts of interest as
required by law or District policy, and
27/23/2014
Definition of Fraud
• School Board Policy (CAA Local)
– Any other dishonest act regarding the finances of
the District.
• Examples:
– Stealing office supplies
– “Borrowing” money from cash collections
– Falsifying
y gp purchase or travel reimbursements
– Falsifying timekeeping records
– Paying “ghost” employees or vendors
Reporting Fraud
• “Any person who suspects fraud or financial
i
impropriety
i t iin th
the Di
District
t i t shall
h ll reportt the
th
suspicions immediately to any supervisor, the
Superintendent or designee, the Board
President, or local law enforcement.” (CAA
Local)
37/23/2014
Reporting Fraud
• Reports of fraud shall be treated as
confidential
fid ti l tto the
th extent
t t permitted
itt d by
b llaw.
• Neither the Board nor any District employee
shall unlawfully retaliate against a person who
in good faith reports perceived fraud or
financial impropriety.
p p y ((CAA Local))
Code of Ethics
• Each District employee shall perform his or her
d ti in
duties i accordance
d with
ith state
t t andd federal
f d l
law, District policy, and ethical standards. [See
DH(EXHIBIT)]
• Violation of any policies, regulations, or
gguidelines mayy result in disciplinary
p y action,,
including termination of employment.
47/23/2014
Code of Ethics
• Board Policy DH (EXHIBIT)
1. Professional Ethical Conduct, Practices, and
Performance
Standard 1.2. The educator shall not
knowingly misappropriate, divert, or use
monies personnel
monies, personnel, property
property, or equipment
committed to his or her charge for personal
gain or advantage.
Code of Ethics
• Board Policy DH (EXHIBIT)
1. Professional Ethical Conduct, Practices, and
Performance
Standard 1.3. The educator shall not submit
fraudulent requests for reimbursement,
expenses or pay
expenses, pay.
57/23/2014
Code of Ethics
• Board Policy DH (EXHIBIT)
1. Professional Ethical Conduct, Practices, and
Performance
Standard 1.5. The educator shall neither
accept nor offer gratuities, gifts, or favors that
impair professional judgment or to obtain
special advantage.
Code of Ethics
• Board Policy DH (EXHIBIT)
1. Professional Ethical Conduct, Practices, and
Performance
Standard 1.6. The educator shall not falsify
records, or direct or coerce others to do so.
67/23/2014
Texas Penal Code & Public Servants
• “Public Servant” includes officers (Board of
T t ) and
Trustees) d employees
l
Texas Penal Code & Public Servants
• Prohibited acts:
– Bribery – offering or accepting a benefit
77/23/2014
In the News…..
Progreso mayor pleads guilty to bribery
• In the
h plea
l agreement thath Vela l signed
d Wednesday
d d in
Houston, he admitted to receiving approximately $300,000
from Bustos and an unidentified school board attorney in
order for the two to get contracts from the city and the school
board.
• “Pay to play” scheme that included cash bribes, liquor bottles
andd trips
i with
i h mistresses
i that
h were paid id by
b those
h llooking
ki to
do business with the school district and the city
The Monitor (4/23/2014)
In the News…..
Architect pleads guilty to role in Progreso ISD
bribery scandal
• Progreso ISD Transportation Director Jose Guadalupe
Vela, his son Progreso Mayor Omar Vela and PISD
Board of Trustees President Michael Vela largely
controlled contracting with the school district and
directed contracts to those who were willing to pay
Vela family members bribes.
ValleyCentral.com (4/23/2014)
87/23/2014
Texas Penal Code & Public Servants
• Prohibited acts:
– Illegal Gifts – soliciting or accepting any benefit in
connection with contracts, purchases, payments,
claims or other financial transactions
• Unsolicited gifts should be donated to a
governmental entity or tax exempt charitable
organization
i ti
In the News…..
Chicago‐area education fraudsters used strip clubs,
cruises,, cash to bribe school officials nationwide
– A father and son used their two suburban Chicago tutoring businesses
to bribe education officials around the country with strip club visits,
Caribbean cruises and cash as part of a $33 million scam, federal
authorities say.
• Defrauded more than 200 school districts in 19 states (including
New Mexico and Texas (Corpus Christi and San Antonio)
• Provided substandard educational materials to students,
• Falsely inflated invoices the companies submitted to school
di t i t for
districts f tutoring
t t i servicesi purportedly
t dl provided,
id d and d
• Caused to be created and distributed false and misleading student
progress and improvements reports
NY Daily News (4/2/2014)
97/23/2014
Texas Penal Code & Public Servants
• Prohibited acts:
– Abuse of Office – Misuse of District property,
services, personnel or any other thing of value
In the News…..
Report Alleges Longtime Fraud in BCSD
Departments
• Employees drove district cars to the Central Coast, used
district equipment to change their personal car’s oil and
used surplus materials for home projects, according to
the report.
• Investigators gathered three years of recycling receipts
totaling nearly $85,000,
$85 000 some showing $62,000
$62 000 being
paid to employees in cash ($34,156 couldn’t be
accounted for)
Bakersfield Californian, 12/13/2011
107/23/2014
In the News….
• Beaumont Independent School District
Employees Charged with Stealing More Than $4
Million
• According to the indictment, beginning in 2010,
the director of Finance for BISD, and the
comptroller for BISD, are alleged to have devised
schemes in which theyy embezzled $4,041,705.27
from BISD by means of 18 separate wire transfers
to bank accounts under their personal control.
• FBI Press Release, January 8, 2014
In the News…
• Former Waller ISD Elementary Principal Pleads Guilty
to Theft of School Student Activity Accounts
($25,000)
• Ex‐Bookkeeper Charged with Theft of School Funds
($35,000)
• Woman Faces Indictment over Theft of School Funds
($10 000)
($10,000)
• Former Charter School Principal Arrested
for Alleged Theft of School Funds ($18,000)
117/23/2014
In the News….
• Investigation: HISD could’ve halted theft sooner
– SSecretary stole
l almost
l $150,000
$150 000 (a
( totall off 19
invoices)
• She admitted to using some of the money to pay for high
medical bills for her son
– She allegedly set up a construction company without
anyone verifying that it was legitimate
– The District confronted her about a year after she
submitted her first invoice due to a lower‐level
accounting employee’s observations
Houston Chronicle, July 2, 2007
In the News….
• Ex‐South San Secretary Charged in Theft Case
(b t
(between $20
$20,000
000 and
d $100
$100,000
000 ffrom SSouth
th
San from 2007 to 2011)
– She was given power to collect all the money from three
employees, and she was the only one keeping records,
receipts and making deposits (athletic gate receipts)
– “When
When you dondon'tt have supervision or oversight ... and
someone has intent to steal, you're making it that much
easier for them.”
San Antonio Express‐News, March 29, 2012
127/23/2014
In the News…
• Ex‐Secretary Faces Charge in Theft of Funds from
Bolton High ($45,905.65)
($45 905 65)
• Former Local ISD Employee Charged with Theft from
School District ($4,000)
What is common in these news stories?
In the News…..Plano ISD
• Source: FBI Dallas Division, Press Release,
A il 1
April 1, 2014
– Gentz plead guilty to charges
– Position: Manager, Security Support Specialist
– Amount embezzled: $2.5 million (may be up to $7
million due to length of scheme)
– Duration:
D i A
August 2001 to D December
b 2013
– Fraudulent invoices from 2 companies
• Services and products were never delivered
137/23/2014
In the News…..Plano ISD
• Source: FBI Dallas Division, Press Release,
April 1, 2014
– US Attorney Bales stated that:
• “Public corruption always involves a breach of trust”
• “Erodes the trust of taxpayers and the community”
• “We will not tolerate public corruption…”
In the News…..Plano ISD
• Source: FBI Dallas Division, Press Release,
April 1, 2014
– Gentz faces up to five years in federal prison.
• A date for sentencing has not yet been set.
147/23/2014
In the News…..Plano ISD
• Source: Plano Star Courier, by Bill Conrad,
A il 1
April 1, 2014 (Highlights)
(Hi hli ht )
Part Owner of Bid Approval
Companies Authority
Manager over Invoice
the Fire & Approval
Security Authority
Systems
Gentz
The Fraud Triangle
157/23/2014
Opportunity
• Lack of internal controls
– Segregation of Duties
• Little or no oversight
• No one has knowledge of the job
• Expects he/she won’t be caught
Opportunity
Add
Employees
Post
Financial
Payroll Pay
Employees
Transactions
Clerk
Reconcile
Bank
Account
167/23/2014
Motivation (Pressure)
• Internal or external pressure
– Financial hardship
– Gambling or other financial losses
– High medical costs due to major illness of family
member
– Spending
p g habits exceed the salaryy
Rationalization
• Culture of the school district (past fraud was
not dealt with aggressively)
• Leadership does not exhibit ethical behavior
• Feeling of entitlement
– “I’m not paid enough”
• Making excuses….feelings that they are not
criminals
– “I’m only borrowing the money, I’ll pay it
back on payday”
177/23/2014
Gentz Fraud Case
• Opportunity
– Did an opportunity for fraud exist?
• Motivation
– Was Gentz motivated to commit fraud?
• Rationalization
– Did Gentz
G t rationalize
ti li ththatt it was okk tto commit
it
fraud?
Fraud Statistics
• The median loss was $145,000
• The median duration was 18 months
• Tips are the most common detection method
• Smallest organizations tend to suffer
disproportionately larger losses
• Anti‐fraud controls are associated with
reduced fraud losses and shorter fraud
duration
ACFE 2014 Report to the Nations on Occupational Fraud and Abuse
187/23/2014
Fraud Consequences
• Adverse Employment Consequences
Not employable due to
termination due to fraud/ theft
Violation of law or
Code of Ethics
Fraud Consequences
• Criminal Consequences
Restitution Imprisonment
Theft by a public servant is increased to the
next higher category (Penal Code)
Arrest
197/23/2014
Fraud Consequences
• Penal Code
1st Degree Felony
> $200,000 (5 to 99
years)
Fraud Gauge
Class C Misdemeanor7/23/2014
Fraud Prevention
• Cash Management
Student A
Student B
Bank Bookkeeper Sponsor
Deposit Slip
Statement Receipt Receipts
Student C
Audit starts with bank statement and Student D
works backwards!
Don’t Break the Money Chain
• Who broke the money chain?
Secretary
$20
$20 Bank
$20
Teacher $20
$20
Students District Office
217/23/2014
Don’t Break the Money Chain
• Who broke the money chain?
Secretary
$20
9/1
$40 Bank
10/2
$40
10/1
$40
Teacher 10/2
$20
Students 9/1
District Office
Fraud Prevention
44
• Purchasing and Financial Transactions
– A
Authorization
h i i to add dd new vendors
d
• Verification of vendor qualifications
– Use of purchase order within approval paths
– Someone other than the department manager approves bids
and contracts
– Monitoring of credit card transactions
– Monitoring of contracts and contract performance
– Restricting access to post financial transactions
227/23/2014
Fraud Prevention
45
• Check Disbursements
– Original invoices should be attached to each check
• Approval of invoices should be based on verification that
goods and/or services were received by the District
– Prepayments should not be issued prior to receipt of
goods and/or services
– The original documentation should be stamped “paid”
to avoid duplicate payments
– A check issuance schedule should be established
– Emergency checks should be kept to a
minimum due to chance of errors
Fraud Prevention
• Warning signs
– Financial challenges
– Lifestyle or spending changes
– Refusal to take time off
– Over‐protective of work area
– Favoritism towards some vendors
– Low staff morale (especially in times of low or
non‐existent pay raises)
237/23/2014
Fraud Protection
• Protect YOURSELF…
– Do not pre
pre‐sign
sign documents such as check or receipt books
– Do not allow anyone to use your passwords
– Do not hold on to cash collections beyond the minimum
time necessary to count and deposit
– Do not issue a check without the supporting
documentation
– Do not accept gifts or favors from vendors
– Do not allow someone else to coerce you
– Do report suspected fraud!
Decisions
“That you may retain your self‐respect, it is
b tt tto displease
better di l th
the people
l b
by d
doing
i what h t
you know is right, than to temporarily please
them by doing what you know is wrong.”
William J.H. Boetcker
247/23/2014
Courage
“Courage is not the absence of fear, but rather
th judgement
the j d t that
th t something
thi else
l isi more
important than fear.”
Ambrose Redmoon
Plano ISD Fraud Poster
257/23/2014
Take the Anti‐Fraud Oath
• I, ________, swear or affirm that I will protect
and d safeguard
f d th
the fi
financial
i l resources off th
the
school district for the benefit of OUR
students! And, I will report suspected fraud
immediately to the appropriate individual(s).
Questions
267/23/2014
Presenter Contact Information
Rebecca Estrada
Executive Director of Finance
Lackland ISD
2460 Kenly Ave., Bldg. #8265
Lackland Air Force Base
San Antonio, Texas 78236
estrada.r@lacklandisd.net
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