If someone in your district is alerted to potential fraud, there are at least seven steps to take
Red flags reported? Respond with these seven steps
Public school districts can face many different types of fraudulent schemes, and perpetrators could come from any level in the organization. The damage done to your district and your budget by fraud, waste, abuse and corruption can be enormous: not just financial loss, but also losses in organizational effectiveness, reputation, credibility and public confidence.
If one of your accounts payable staff reported a series of suspicious transactions, would your employees know what to do next? Early missteps in responding could create human resources issues; worse, mistakes could jeopardize a future criminal prosecution, if one becomes necessary.
What are some common conditions that can lead to fraud, waste, and abuse?
- Lack of internal controls and proper segregation of duties
- Autocratic management style
- Management override of controls
- Positions with frequent turnover
- Individuals that have held the same position for many years
- Individuals that seem to have a sense of entitlement
Years may elapse between the beginning of a fraud scheme and its detection. The fraud may come to light in various ways, from an anonymous hotline tip to pure happenstance. If fraud is suspected, make sure employees know what to do.
Seven steps
If someone in your district is alerted to potential fraud, these are the steps to take:
- Analyze all information available and assess the nature of the red flags and misconduct
- Establish a chronology of relevant events, when they occurred, and when the red flags were identified
- Create and maintain a fact sheet that can be used as a central reference listing key individuals, organizations or events
- Trace transactions to their source documents; gather data and secure electronic evidence before it can be destroyed
- Analyze financial results for unusual trends in revenue or expense accounts
- Analyze individual transactions to find deviations from the norm, either in amount or in procedure
- Analyze correspondence, especially e-mails
- Know your facts, including the background of each interview subject
- Make proper notifications to management, the board of trustees, auditors and legal counsel
- Be discreet and maintain privilege
- Conduct interviews and isolate the suspect(s)
- Develop and execute an investigative plan
- Perform the investigation
- Report findings to stakeholders, differentiating carefully between information that can be made public and what must be kept confidential
The smell of smoke can indicate burned toast as well as a bonfire, and not every red flag indicates a fraud scheme. You may discover, instead, an opportunity to improve internal controls or fix an outdated process. Either way, it is wise to have a response plan in place so that everyone knows what to do what that flag goes up.