crooks you work with larry bailey executive director wsrmp
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Crooks You Work WithLarry BaileyExecutive Director WSRMP
Feb, 23, 2011
Treasurer suspected of stealing nearly $500,000 from Birch Bay Water and Sewer districtZOE FRALEY / THE BELLINGHAM HERALDBIRCH BAY - The former treasurer of the Birch Bay Water and Sewer District is suspected of stealing about $470,000 from the district over seven years, according to the district.The alleged misappropriations by longtime treasurer Glenn Golay came to light in January during a State Auditor's Office review of the district's finances for 2008-09.
Aug, 12, 2011
Former Birch Bay water district treasurer gets three years for theftZOE FRALEY / THE BELLINGHAM HERALD
The former treasurer of the Birch Bay Water and Sewer District will have to serve three years in prison and pay back $450,000 to the district that he stole while working there.
Blaine resident Glenn Golay, 65, pleaded guilty to nine counts of theft and was sentenced Thursday, Aug. 11, in Whatcom County Superior Court.
Golay had been stealing about $37,000 to nearly $80,000 per year between Jan. 1, 2003, and Dec. 31, 2010, according to a Washington State Auditor's Office investigation. He had been the district's treasurer for more than 20 years.
Someone You Trust
Church Treasurer Deacon Board Leader in Professional Association PTA Board President
Self Deception
Procrastination Rationalization
The “Fraud Triangle”
Opportunity
Motive/Pressure
Rationalization
Catching the Office Manager
Isn’t it the SAO’s job to Find Fraud?
Auditor’s Role “Expectation Gap”
Public assumes purpose of the audit is to catch fraud.
Statement on Auditing Standards 99 (AICPA Acct Stds Bd) “The auditor has responsibility to plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. “
Auditors prepare report on whether the financial statements are fairly presented. They should investigate suspected frauds uncovered during their review, but not primary objective.
How Much Fraud Is There? Association of Certified Fraud Examiners
(ACFE) Annual Report (www.acfe.org) 1,843 cases surveyed Jan08-Dec09 (40%
outside US) Average loss 5% of annual revenue Median Loss $160k, 25% > $1m
Financial Statement Fraud $4.1m, Corruption $280k, Asset Misappropriation $135k
Asset misappropriation cases most common 90%, Corruption 22%, Financial Statement Fraud 4% (Overlap because many cases involve more than one) SOURCE: 2010 ACFE Annual Fraud Report
Who Commits Fraud?
Employees 42% (median loss $80k) Managers 41% (median loss $200k) Executives 17% (median loss
($723k)
SOURCE: 2010 ACFE Annual Fraud Report
Gender and Age of Fraudsters
Men 57% The median $ loss is 2.5x women
40% have between 1-5 years seniority The longer they have worked there, the
bigger the average theft 50% between ages 31-45
Losses sharply increase with age
SOURCE: 2010 ACFE Annual Fraud Report
Accounting 22% Sales 14% Upper Management 14% Purchasing 6% IT 3% HR 1.3% Internal Audit 0.2%
SOURCE: 2010 ACFE Annual Fraud Report
Fraudster’s Departments
87% had no previouscriminal record
83% never punished or terminated from earlier job
SOURCE: 2010 ACFE Annual Fraud Report
Fraudsters Records
How Long Does Fraud Last?
Median time before detection 18 months
Our frauds for two Water & Sewer Districts went on for 6-7 years
SOURCE: 2010 ACFE Annual Fraud Report
How Did They Do It? Missing/Weak Internal Controls (37.8%) Override of Good Internal Controls
(19.2%) Lack of Management Review (17.9%) Poor “Tone at the Top” (8.4%) Incompetent Oversight (6.9%) No Independent Oversight (5.6%) All others (4.2%)
SOURCE: 2010 ACFE Annual Fraud Report
How Do Manager Think Fraud is Detected?
External Audit – 76% Internal Audit 69% Fraud Training-Managers 42% Fraud Training-Employees-40% Job Rotation/Mandatory Vacations-15%
SOURCE: 2010 ACFE Annual Fraud Report
How is Fraud Actually Detected? Fraud Tip Line (40.2%) Management (15.4%) Internal Audit (13.9%) Accident (8.3%) Account Reconciliations (6.1%) Document Review (5.2%) External Audit (4.6%)
SOURCE: 2010 ACFE Annual Fraud Report
Warning Signs
Living beyond means (43%) Financial difficulties (36%) Control issues (23%) Close with vendors/customers (22%) “Wheeler-Dealer” style (19%) Divorce/Family Issues (18%) Addictions (12%) Never takes vacations (10%) Frequent complaints about pay/promotions
(5%)SOURCE: 2010 ACFE Annual Fraud Report
Three Steps to a Fraud Commit-Take the money, create the false
vendor, etc. Perception of effective internal controls is best
way to stop this. Conceal-Alter records to make detection
difficult Effective internal controls make hiding the
fraud more difficult Convert-Alter the form of what has been
taken into something useful to the fraudster
Conversion can be internal (check for cash) or external (ebay?)
Magic Anti-Fraud Bullet:Segregation of Duties
When one person can perform any two of the following, there it’s a fraud opportunity: Custody Function
Who actually handles the cash, stuff, etc? This includes the District checkbook.
Approval Who approves the use or transfer of the asset?
Recording/Reconciliation Who records the use or transfer? Who prepares the
source documents?
Types of Fraud Theft of assets (generally cash, but could
be equipment/inventory) Most common, but lower in total amount
Improper expenditures (fake vendors
“ghost” employees) Less common, but larger
Financial Statement
Cash Receipts Frauds Is all money getting to bank when it
should, and are all adjustments valid? Skimming/Underreporting (before
entering system) Cash Theft (receipts already recorded in
accounting system) Ways money comes in?
Mail, credit cards, wire, cash receipts at the counter, etc?
Preventing Cash Receipts Fraud Segregation of duties
Handlers of cash should never be able to adjust accounts
Separate tills (can be a challenge) Use receipts that are difficult to alter
(prenumbered, Z-Tapes,etc) Daily deposit of ALL funds (RCW requires)
Even if you don’t know why you got it, accounting can figure it out later
Daily reconciliation of deposit to CR records Composition of deposits (Does check/cash
composition match what the bank received?)
Are you getting the benefit of all your purchases?
Small and attractive items Theft of inventory Borrowing of equipment Disposal of “Surplus”
or “Damaged” equipment
Preventing Misappropriation Frauds Internal Controls
Separate approval of purchases Separate approval of writeoffs, surplus, scrap Policy prohibiting personal use of district
assets Tagging the assets Physical control over inventory/equipment
(locked room) Periodic inventory count
Fraud Hotline (SAO, District)
Disbursement Frauds Do you know where your money is
going? False Billing Fraud
Fake invoices/Fake Vendors Pay & Return Scheme (Real vendors
asked to return “overpayment”) Kickback schemes (Vendor actually
participates in fraud) Mileage expenses
Padded mileage expense reports
Preventing Disbursement Frauds Separate person authorizing payment Original invoice supports expenditure
Documentation supports vouchers Person who actually knows is the person who
approves it Duplicate payments? Do warrants from the county agree to the
warrant register? Different person making the comparison
Control of the mailing of the warrants Different person mails the payments after they are
prepared
Payroll Frauds
Are you paying the right people? “Ghost” employees/PT padded to FT
Right people paid wrong amount? Padding timesheets Unapproved Raises/Benefits
Leave records? Effectively a raise, since the employee
has more vacation as a result
Padded time sheets
Preventing Payroll Frauds
Internal Controls Reconciliation of the pay disbursements to
the pay records Who creates and maintains the
payroll/records? Who approves the timesheets?
Can the fraudster alter them after approval? Who hands out the checks?
Financial Statement Frauds Takes place in the public sector as well
Bond covenants Grant requirements
Types of Frauds Concealment of expenditures
or liabilities Improper disclosures Related parties
Preventing Frauds Generally “Tone at the Top”
District’s leadership must embrace integrity as a core value of the organization.
Truthful reporting more important than favorable reporting
Segregation of Duties Challenging in smaller entities.
Compensating controls must be found
Preventing Frauds Generally Organizational Structure – commissioner as
acting treasurer RCW 57.12.010 does not require it (Risk vs
Compliance) Hiring Practices
Background checks on employees and vendors regarding finance/accounting
Employee Training All employees are part of the fraud fighting
team Terminate and Prosecute Fraudsters
What Can Electeds/GMs Do? Ask Dumb Questions!
Until you understand the answers. Don’t let accounting’s sophistication intimidate you.
Review Transactions Spend an afternoon every few
months at the District looking at vouchers. Ask more questions
What Can Elected Officials Do?
Listen to Staff How would they improve their jobs?
Don’t expect to see fraud everywhere, but don’t be afraid to see it either
Example of What You Can do
“I gave my first treasurer’s report at the commissioners meeting last
night. I only pretended to know what I was talking about,
fortunately, the other commissioners only pretended that
they were listening.”
Acting treasurer role – needed for oversight function on every district Board of Commissioners
Resources
State Auditor’s Office –www.sao.wa.gov Fraud Hotline - 1-866-902-3900
Washington State Society of CPAs – WSCPA.Org
Association of Certified Fraud Examiners – ACFE.Org
WSRMP Internal Control Handouts
“Trust but Verify”
