Stealing from Children, Part III

How do they do it?

Sometimes the details of crimes are left vague.  Probably the thinking is that if we provide an explanation of exactly how something was done it will be a blue print to thieves for future bad behavior.  I take the opposite view.  People who are bent on stealing already know how to do it.  It is the naively honest who need to believe that these things really do happen.  They seem to be unable to imagine how a person could brazenly take advantage of them. If you have ever had your car stolen or your house burglarized, that’s the feeling I am talking about.  Except magnified, because this was done by a person you trusted.

Here are a couple of examples of the many thefts and frauds that can occur in school districts.

Cash

Think of a fundraiser, such as a carwash, where the proceeds are all in cash.  A big bag of coins and bills is dumped on the school secretary’s desk.  “Here you go.  Please deposit this.”  Often the cash hasn’t even been counted.  Cash can be stolen all along the chain of custody, from the students washing the cars to the advisor collecting the cash to the school secretary making the deposit,

How to reduce the opportunity

1. Project Revenue in Advance.  If there are four teams of car washers, and each team washes a car every ten minutes (6 per hour) and the car wash is going to last three hours and each car wash costs $10, then the potential revenue is 6 x 4 x 3 x $10 = $720.  Compare this to actual receipts.
2. Appoint an Auditor (but maybe call it something else).  Did you know that as debris was being hauled from the World Trade Center bombing site, auditors were counting the number of trucks from each hauling company.  Why?  To prevent over-billing.  Yes, some people will take advantage of even the nation’s greatest tragedy.  You don’t think they’ll steal from a car wash?  The auditor will count cars and will not handle cash.
3. Appoint a Cash Collector. Issue a receipt. One clever way to do this is to provide a numbered ticket that is also an invitation to another event. “Come to our jumble sale next Saturday and here’s a ticket for a free something or other”.  The numbered ticket documents how many ten dollar payments were received.
4. Count the cash right there and then.  The auditor, the cash collector, and the club advisor will count the cash immediately at the end of the event and reconcile the amount collected to the number of tickets distributed and the number of cars  counted.

Phony Vendors and Invoices

Set up a phony vendor.  Create a phony invoice.  Write a check to the phony vendor. Intercept the check.  Cash it yourself.  A variation of this theme is setting up a phony employee.

Two cases spring to mind.  Once was extremely clumsy, the other rather sophisticated.  Both were effective (for a while).

In the first instance a school secretary created phony invoices from the Mighty Credit Travel agency.  She wrote checks to “Mighty Credit” purporting them to be payments for a class trip.  The checks, once issued, were mailed to the real Mighty Credit card company, to pay down the secretary’s personal credit card balance. The invoices, purportedly from a travel agency, were of extremely poor quality generated on a personal computer, contained spelling errors, had no invoice numbers or dates, and had no telephone number.  All dead giveaways that something was very wrong.  This was a case of lack of segregation of duties, and poor monitoring by the principal who signed checks without examining any invoices.

The second instance was of an accounting supervisor who made payments to a company run by herself, then went into the system after the check was issued and changed the vendor name on the issued check to another vendor (a legitimate school district vendor).  This was a case of too much system access.

How to reduce the opportunity

1. Segregate duties.  Those who pay vendors should not be able to add vendors.  Those who write checks should not be able to sign checks. Those who sign checks should not give them back to the person who wrote the check for distribution.  Those generating checks should not do the bank reconciliation.
2. Authorize the payment. Have a way to ensure the goods or services were actually received before payment is made.  For student accounts make sure that the student body has authorized the payment.  Have the club advisor sign off on any invoices as OK to pay.
3. Limit system access.  This is not just for clerical staff, but for management as well.  For example, as a manager I might need to look up vendors.  I shouldn’t be able to add them.

Most of all, if you are told your internal controls are weak, please take this seriously.  If you are responsible for student body accounts, the first and last word on California ASB accounting is available in this manual here.  Please use it.