Preventing Fraud by Shining the FOIA Spotlight

We’ve posted about how hard it is to get information out of Gilbert Public Schools, especially since the managerial mindset is that Freedom Of Information Act requests cost the district money by forcing GPS to respond to those requests. It looks like Christina Kishimoto wants to restart up the old mushroom treatment.

Liberating a copy of the complete audit from last year was worth the FOIA effort. As we read the GPS responses to the glaring discrepancies the audit found, we recalled how the Good Old Boys used to work overtime to keep this kind of information out of public view. They spent a lot of money doing that, as well.

We told you about how GPS “lost” in court again … and paid a price for it. We guess that the GPS GOBs don’t think twice about dropping $125,000 plus to litigate a losing proposition, but we know that Gilbert citizens resent such huge sums of money being funneled away from educating students.

A couple of members of the GPS governing board and the wannabes that want to “take back” the board seats they lost are now complaining about the high cost of fulfilling requests for public records. One wannabe who couldn’t get elected after he had a seat handed to him is now in full battle mode about the costs involved.  But we digress.

Remember when Good Old Clyde Dangerfield got rid of the Internal Auditor so he could promote Crystal Korpan? Those chickens are coming home to roost. Let’s start with the GPS wahhh-mbulance responses to discrepancies that appear on page 26 of the 2012-2013 Audit:

For several months we were behind in cash reconciliations due to a lack of resources. Additionally the person solely responsible for reconciliations left the District a few weeks prior to the audit. We have since restructured the process and methodology to allow a coordination of several resources to aid in this effort and stay up to date. Regarding the equalization posting, we had a few discussions with the county office to determine when the revenues should be posted since we were well into the encumbrance period. The payments were not received in the old fiscal year as they should have been, and since we were still behind on reconciliation the correction was not made. The $7,678 is related to items waiting to be cleared from several months of posting that are still being caught up.

Recall that GPS’s *lack of resources* was a self-inflicted wound. GPS really played that small violin anyway, blaming all kinds of problems on the one employee who left a few weeks prior to the audit. What’s important in all this hand-wringing and misdirection is that the *tone at the top* is one that could have indicated financial fraud. Even when audits are conducted. Let’s look at what GPS’s friendly auditor, Heinfeld Meech & Co has to say about circumstances eerily similar to what’s been going on in GPS in recent years among the top dogs in the superintendency:

Instances of financial fraud are commonly associated with weaknesses in the tone at the top. Poor tone at the top may include instances of the following: a disparagement of internal controls, an overemphasis on other objectives such as fund balances or achievement of certain projects at the expense of ethics, a belief that compliance with the letter of the law is sufficient for appropriate ethical behavior, accommodations of some stakeholders but not others, blaming higher-ups or colleagues for unethical practices and conflicts of interest. …

The bottom line is ensuring our decisions are based on the best interest of the district and the students and community served. Conflicts of interest can get in the way of conducting ourselves in this manner. Competing interests can include outside financial relationships, the desire for professional advancement and the desire to do favors for family and friends. If conducting operations in the best interest of the district and the students and community served is not enough motivation for ensuring a strong tone at the top, how about preventing fraud and the loss of the district’s resources?

There’s still a Wild West attitude and plenty of fast-and-loose capers with public dollars that seek to evade oversight. Sometimes the truth can get in the way of professionalism in GPS, such as when Dr. K recreated the Purchasing Manager position and left the Internal Auditor position in Business Services vacant. What could go wrong, especially since GPS gets audited by Heinfeld, Meech & Co regularly?

External audits are implemented by a large number of organizations, but they are among the least effective controls in combating occupational fraud. Such audits were the primary detection method in just 3% of the fraud cases reported to us, compared to the 7% of cases that were detected by accident. Further, although the use of independent financial statement audits was associated with reduced median losses and durations of fraud schemes, these reductions were among the smallest of all of the anti-fraud controls analyzed in our study. Consequently, while independent audits serve a vital role in organizational governance, our data indicates that they should not be relied upon as organizations’ primary anti-fraud mechanism.

…Most occupational fraudsters exhibit certain behavioral traits that can be warning signs of their crimes, such as living beyond their means or having unusually close associations with vendors or customers. In 92% of the cases we reviewed, at least one common behavioral red flag was identified before the fraud was detected.

We don’t for a moment think that most GPS employees are bad people, but the chirps we heard about *training* sessions dealing with handling cash have become alarming. Some of these training sessions seem to be focused on how to get around the rules. We also hear about making employees sign statements that they won’t do bad things any more, now that they’re *trained* as the audit responses promised. Unfortunately, some of those same folks are passing along knowledge about how to get around payroll roadblocks. There’s a lot that will be coming to light in coming months.

We’ll close with Heinfeld, Meech & Co’s discussion of how good people find themselves involved in fraud:

Terms like micromanaging, lack of trust, red tape, and jumping through hoops are used to describe work processes or environments which seem to have an undue amount of oversight over routine activities. While these extra steps may be perceived as inconvenient to employees, they are put in place to protect the organization itself as well each individual within the organization.

GPS has a long way to go, it seems. Celebrating convicted criminal Brian Yee shows tone-deafness continues, especially considering allegations against Coach Rutt.

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