GETTING SCHOOLED IN FRAUD

The Stamford Advocate reports that a former Iowa school district business manager improperly spent US $262,000 of the district’s money to pay off personal credit cards and partially fund trips, including “a trip to a Florida conference where she led a discussion about best practices for auditing and fraud prevention.”

Suspicious travel costs led the district’s superintendent to request an investigation by the state audit office. The audit findings included 29 checks totaling US $24,000 issued by the district and cashed without any supporting documentation, although several indicated they were for postage or to replenish petty cash funds. The superintendent said the former business manager went “to great lengths to conceal any irregularities in monthly financial statements and reports” given to him and the school board.

Lessons Learned

Organizations lacking strong internal controls, such as segregation of duties, always will be vulnerable to fraud. In these situations, employees can exploit their position of authority as well as the lack of monitoring and review to commit fraud.

Areas such as petty cash handling and replenishment, equipment and supplies purchasing, and travel expense processing are easy targets for fraudsters. Therefore, management should regularly review these types of transactions as well as corporate credit card statements for employees with purchasing authority. Also, requiring pre-approval of travel expenses and original copies of receipts can help deter fraudsters.

The time and effort to provide sufficient oversight is negligible compared to the monetary losses and reputational damage fraud can cause. Moreover, organizational management should be held accountable when it creates an environment where the opportunity for fraud is present and the preventive and detective controls are absent.

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