Public Fraud & Theft
In the Workplace

Economic Downsizing in Local Governments

Employee Wage Freezes, Furloughs, and
Reduced Benefits

Economic Hardships on Individual Employees
Loss of Dual Incomes
Loss of Investments or Home Values
Increased Expenses or Medical Costs
Looming Retirement Date

Justification/Anger Due To “Wall Street”
Bailout or Actual/Perception City
Management not Sharing the Cutting Pain

Rapid Changes in Financial Systems; including
speed, volume, and complexity of transactions
and
Improvements to technology and improved
access to personal information.

Changing Societal Values
Symantec Smart Phone Honey Stick Project
Planted 50 “lost” phones and tracked their movement, return rates,
and pilferage of personal data

89% Accessed Personal Data

72% Accessed Personal Pictures

57% Accessed Password Folders

43% Tried to Access Banking Apps

Less than 50% tried to return the phone
“Secretary Cameron would
not steal a red hot stove.”
Thaddeus Steven , 1861
Number
8
4
3
3
2
2
2
1
25
Type
Theft/Gift of City Service
Purchasing Fraud
Cash Stealing
Other Types
Payroll Fraud
Property, Equipment, Small Tools
Friends and Family Plan – Loans and Checking
Asset Conversions
Total
“Where do people steal the money?
They steal it on the way in and the
way out.
Joe Derives, SAO
$1.6 (m) – Franklin County
Public Works Manager
Accused - Payables Fraud
Took Over Bankrupt Company ID
Created Quasi Bank Account
Approved Invoices payable to Company
8 years
$1.0 (m+) - City of Seattle
Project Engineer
Accused - Connection/Late Comers Fees
And Other Development Fees
Quasi Bank Account – City of Seattle’s Name
6 Years
$468(k) – Birch Bay WSD
Finance Manager
Credit Cards, Payables, Travel Fund,
Quasi Bank Account
8 Years
$1.3 (m) – City of Arlington
Finance Accounting Clerk
Accounts Payable - Manual Warrants
Quasi Bank Account
8 Years
$151(k) – City of Lakewood Police Guild
Police Officer
Accused - Donations for Memorial Trust Fund
Quasi Bank Account
2 Years ?
“Ability is nothing without
opportunity.
Napoleon Bonaparte
Strong internal controls will not stop fraud!
Strong internal controls will decrease the
likelihood of fraud; and,
Strong internal controls will decrease the
likelihood of fraud; and,
Increase the speed in which the fraud is
identified; and,
Strong internal controls will decrease the
likelihood of fraud; and,
Increase the speed in which the fraud is
identified; and,
Create a better record trail to identify and
determine who committed the fraud, its duration,
and the amount.
“Trust, but verify”
Ronald Regan
Dual Controls, Segregation of Duties, Four Eyes
Principle
Pre Employment Background Checks
? In the Franklin County fraud, the employee
was hired 8 months after being released from
Federal prison for creating a fake company to
steal from the Federal Government.
Pre Employment Background Checks
? A former Deputy City Clerk, arrested for $7.5
(k), then hired as a bookkeeper for a local
roofing company and was later convicted for a
$200(k) fraud.
Should be noted that she said stole for a
psychological need to help other people by giving
them money.
Pre Employment Background Checks
! Follow your background checks, and don’t hire
people that do not pass the background.

Daily Deposits
Daily Cash Counts
Check and Cash Composition
Dual Verification of Deposits and Posting Reports
Daily Verification of All Deposits

Check Issue and Redemption
Control of Check Stock
Invoice Approval by Non-Check Issuer
Detailed Receipts/Invoices for Payment
Check Redemption by Non-Check Issuer
Final Payments and Invoices Reviewed by Non-Check Issuer
Positive Pay with Bank by both Check # and Amount

Bank Reconciliation & Online Banking
Templates Setup (Quasi Bank Accounts)
Daily Cash Management to Posting Deposits
Formal Program Monthly of all Bank and Investment Accounts
Deposit Composition
(Checks/Cash/ACH/Autopay/Credit Card)
Check Redemptions and Endorsements
Dual Review with Supporting Documentation
Dual Approval for All Online Transfer Templates
Strong Password Protection
Unique User Names
Emailed Alerts

Accounts Receivables
Utility Billing Registers
Off Book Receivables
Connection, Latecomer, and ULID Payments
Reconciliation between Payments and Services

Payroll
Written Documentation and Approval of Pay Rates and Benefits
Review of Check Issues
Reconciliation of Taxes Paid
Review of Key Employee Payroll and Paid Time Off Reports
Random Review of Time Reporting Records
Verification of Checks Issued to Actual Employees
“All war is
deception”
Sun Tzu
All fraud is based on deception
1.
Most frauds are larger than initially thought;
All fraud is based on deception
1.
Most frauds are larger than initially thought;
2.
Not uncommon to have “stumbled” on the fraud prior
to detection;
All fraud is based on deception
1.
Most frauds are larger than initially thought;
2.
Not uncommon to have “stumbled” on the fraud prior
to detection;
3.
Fraud will have a civil element and may have a
separate criminal element;
All fraud is based on deception
1.
Most frauds are larger than initially thought;
2.
Not uncommon to have “stumbled” on the fraud prior
to detection;
3.
Fraud will have a civil element and may have a
separate criminal element;
4.
Fraud auditing and resolution take a significant
amount of time;
All fraud is based on deception
1.
Most frauds are larger than initially thought;
2.
Not uncommon to have “stumbled” on the fraud prior
to detection;
3.
Fraud will have a civil element and may have a
separate criminal element;
4.
Fraud auditing and resolution take a significant
amount of time;
5.
Rare that a person doing fraud will admit to the fraud.
Expect Counter Claims to Arise
 Americans with Disabilities Act
Expect Counter Claims to Arise
 Americans with Disabilities Act
 Hostile Work Environment and Sexual
Harassment
Expect Counter Claims to Arise
 Americans with Disabilities Act
 Hostile Work Environment and Sexual
Harassment
 Washington State Whistleblowers
Expect Counter Claims to Arise
 Americans with Disabilities Act
 Hostile Work Environment and Sexual
Harassment
 Washington State Whistleblowers
 The Everyone Else is Doing Theory
“By failing to prepare,
you are preparing for
failure”
Benjamin Franklin
Washington State Whistleblowers
R.C.W. 42.40.030 protects State employees when
they file a whistleblower complaint
R.C.W. 42.41 Local Government Whistleblower
Act Protection for Counties, Cities, and Special
Purpose Districts is their own Agency’s
Whistleblowers Policy, or the County Prosecutor’s
Officer if the agency has not adopted a
Whistleblower Policy
R.C.W. 43.09.185 – Requires state and local
agencies to report immediately to the State
Auditor’s Office known or suspected loss of funds
or assets or other illegal activities.
R.C.W. 43.09.185 – Requires state and local
agencies to report immediately to the State
Auditor’s Office known or suspected loss of funds
or assets or other illegal activities.
Management Representation Letter – Chief
Executive Officer and Chief Financial Officer are
fiduciary responsible to disclose any loss of funds,
or assets or other illegal activities.
R.C.W. 43.09.260 (7)– Requires any compromise
or settlement of any claim arising from
malfeasance, misfeasance, or nonfeasance, or by
any action therefore, or for any court to enter
upon a compromise or settlement of such action
without the written approval of the attorney
general and the state auditor.
City Manager or Chief Executive Officer
Police Chief or Sheriff
City Attorney
Human Resources
State Auditor’s Office
WCIA (Pre-Defense Review on Personnel Action)
Colleagues (with reservations)
The cost of fraud is not only measured in the in
the lost dollars.
 Stress
 Time Consuming
 Emotionally Demanding and Draining
 Divisive
 Tarnishes the reputation of the agency and all
the other hard working honest employees
All Public Employees Carry Each Other’s Honor