Fraud in School Activity Funds

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Fraud in School Activity Funds

• Presented by
• Dennis F. Dycus, CPA, CFE, CGFM, Director
• Division of Municipal Audit
• State of Tennessee
• AGA Nashville Chapter
• Winter Seminar
• January 13, 2009

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Fraud in Student Activity Funds

• Question
• Under what circumstances do Honest people steal?

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Fraud in Student Activity Funds

• In order for an Honest person to steal, three
  things must be present
• A Need
• An Opportunity
• Rationalization

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Fraud in Student Activity Funds

• Of these three things that must be present, which
  one does the process of accounting (or lack there
  of) for school activity funds provide?
• Opportunity

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Fraud in Student Activity Funds

• And who is responsible for the accounting system?
• MANAGEMENT
• (The Principal)

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Fraud in Student Activity Funds

• Opportunity through lack of adequate segregation
  of duties
• Areas of Opportunities
• Ticket Sales
• Not prenumbered
• No reconciliation

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Fraud in Student Activity Funds

• Timing of the count of collections
• Timing of deposit of collections
• Failure to take into consideration the redeposit
  of the change fund
• Method of obtaining change for the ticket sellers

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Fraud in Student Activity Funds

• Other Situations That Create Opportunity
• Methods of handling vending machine revenues
• Failure to count cash immediately upon receipt
  for deposit
• Method of handling picture sales
• Fund raisers

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Fraud in Student Activity Funds

• Failure to issue prenumbered receipts or issuing
  the receipt and not providing a copy to the
  individual turning in the money
• Preparing false fund transfer authorizations
• Methods for awarding picture contracts

10
Fraud in Student Activity Funds

• Maryville High School principal, Dr. David
  Messer, was arrested and charged with theft of
  property under 500 for allegedly taking money
  from the schools concession stand cash box.
  Records show that on 17 separate occasions, Dr.
  Messer misappropriated a total of 1,205 from the
  cash box.

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• In his written statement, Dr. Messer admitted
  that he was experiencing financial difficulties
  and that some of the money was taken to pay bills
  and to cover two returned checks. He entered a
  best interest guilty plea to 17 counts of theft
  and was sentenced to 17 concurrent sentences of
  11 months and 29 days. The court suspended
  service of the sentences and placed Dr. Messer on
  probation and ordered restitution of the 1,205
  and 100 hours of com. service

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Fraud in Student Activity Funds

• Lexington High School
• Senior class sponsor failed to account for at
  least 489 raised by the seniors at a car wash
• Failure to obtain approval for event
• No collection records maintained
• Collections not remitted to bookkeeper
• No support for disbursements
• Portion of collections use to pay prom expenses

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Fraud in Student Activity Funds

• Scotts Hill School Dance Team
• Sponsor ordered and collected money for uniforms,
  but failed to turn collections over to school
  bookkeeper
• School billed for 951
• When confronted, sponsor said that she paid the
  bill by money order
• Subsequently admitted that she had not
• Paid bill by personal credit card
• Matter referred to local DA Judicial Diversion

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Fraud in Student Activity Funds

• In this situation
• Sponsor failed to maintain adequate collections
  records
• Collections not remitted to cashier

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Fraud in Student Activity Funds

• Huntland Cafeteria
• During August, September and October, on 18
  separate days, adjustments totaled 150 or more,
  and on 2 of those days, exceeded 600, totaling
  5,900
• Represented unaccounted for collections
• Subsequent to managers resignation, during the
  month of Nov. only two adjustments totaling
  22.75 were made

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Fraud in Student Activity Funds

• Total funds unaccounted for the three months
  ended October 2001, 7,269
• In July 2003, the Franklin County Grand Jury
  indicted the former cafeteria manager on three
  counts of theft over 1,000, computer fraud, and
  official misconduct

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Fraud in Student Activity Funds

• Fayette-Ware High School
• Summer School
• No records of amounts collected from each student
• Receipts not prenumbered
• Some receipts had been removed
• Collections totaled 14,578 but should have been
  20,000

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Fraud in Student Activity Funds

• For previous summer session, collections were
  used to pay school bills, resulting in no funds
  being available to pay the BOE for the salaries
  of the summer school teachers (Approximately
  16,200)
• The school activity funds (general and
  restricted) had a combined deficit balance at
  year end in excess of (44,000)

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Fraud in Student Activity Funds

• Recorded A/P at year end were 46,000
• We found an additional 14,000 unrecorded A/P for
  a total of 60,000
• The school did not issue prenumbered receipts
• There was evidence that some of the receipts had
  been removed
• Several ticket reconciliations for football games
  could not be found

20
Fraud in Student Activity Funds

• The Superintendent of Schools issued a memorandum
  to the County Food Service Supervisor authorizing
  certain board employees to eat free meals at the
  school cafeterias.
• Such a policy is in direct violation of USDA
  regulations

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Fraud in Student Activity Funds

• 2,677 of unauthorized purchases were made from
  Continental Baking Company
• Purchases of ham substantially exceeded the
  recorded amounts served or stored
• Unauthorized purchase of 1,500 pounds of sausage
  at a cost of 1,236
• But paid for by the central office staff

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Fraud in Student Activity Funds

• Excess claims for reimbursement from USDA
• 771 Meals claimed (every approved student)
• 98 approved students were absent
• Large increase in cash collections from lunch
  sales after our review started

23
Fraud in Student Activity Funds

• Average daily cash collections in Oct. and Nov.
  were 123 per day
• During and following our review, average daily
  cash collections increased to 178 per day (45
  increase)
• However, during the same period, average student
  participation decreased by over 200 students per
  day

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Fraud in Student Activity Funds

• Analysis of vending revenues for 33 months
  revealed a shortage of at least 28,560
• Spanish Club fundraiser revenues were short
  1,166
• Revenues were insufficient to cover costs
  resulting in a loss of 771
• English fundraiser short 496

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Fraud in Student Activity Funds

• Concessions sales at the Holiday Basketball
  Classic tournament were not deposited
• Revenue from the freshmen basketball game against
  XYZ school was not deposited
• Revenues were not posted to the proper accounts
  (just where ever needed)

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Fraud in Student Activity Funds

• Northeast High School Clarksville-Montgomery
  County
• During a 15 month period, the school bookkeeper
  failed to deposit 94,700 in collections into
  the schools bank account
• In addition, the school bookkeeper wrote checks
  for personal expenses in the amount of 10,240

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Fraud in Student Activity Funds

• Altered checks to make it appear that they were
  issued for authorized purposes
• 2,250 for 150 T-shirts / Deposited into personal
  bank account
• 1,499 Choir Costumes / Deposited into personal
  bank account
• 1,500 Mulching Plants / Partial payment for
  installation of central heat and air in new home
• 2,500 Seeding football field / Partial payment
  for installation of central hear and air in new
  home

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Fraud in Student Activity Funds

• Bookkeeper made unauthorized transfers between
  funds in order to hide deficit balances
• Collection logs could not be located
• Unsupported disbursements
• Charm bracelet 141
• Towels and Bath Mats 250
• Tablecloth 129

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Fraud in Student Activity Funds

• Pair of silver candelabras 495
• Silver round tray 40
• Silver dish and bowl 45
• Groceries and paper goods 235
• Total 1,490
• Bookkeeper was responsible for preparing deposit
  slips, making deposits, reconciling bank
  statements, receipting, disbursing and recording
  collections

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Fraud in Student Activity Funds

• Cash was turned in and counted at a later date
  and a prenumbered receipt issued at that time
  would often not be picked up

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Fraud in Student Activity Funds

• Eastside Elementary Warren County
• Vending machine shortage 13,970
• Santa Shop fundraiser (2002) shortage 972
• Santa Shop fundraiser (2001) 1,279
• Receipted collections not deposited 459
• Collections recorded on logs but not recorded by
  bookkeeper in CRJ or deposited 486
• Book Fair shortage 333 Total 17,499

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Fraud in Student Activity Funds

• Riverdale High School Rutherford Co.
• Middle Man for vending machines failed to remit
  commissions of 12,000 to school
• Principal authorized the use of activity funds to
  pay for part of the construction cost of a weight
  room on the school campus - 28,000

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Fraud in Student Activity Funds

• Inadequate controls over vendor-operated food and
  drink concessions located in the school bookstore
• Sales taxes not remitted to the state on certain
  goods

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Fraud in Student Activity Funds

• Miscellaneous Items
• Building and selling houses
• Auto repair trade school
• Anybody need a used car
• Truck tires
• Fence that land and lets put some beef on it
• Digging a footing for a foundation is a good
  learning experience

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Fraud in Student Activity Funds

• Clarkrange High School
• Fentress County
• 9,000 in school activity funds were used to
  purchase a van
• Van log did not account for 16,945 miles
• The school board took the van school had to
  rent a van for various school activities
• Fundraisers at least 5,185 short

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Fraud in Student Activity Funds

• Student activity funds used to purchase school
  maintenance supplies, gift certificates and
  newspapers for teachers
• Kingsport City Schools
• Paid vendor almost 66,000 in one year for
  audiovisual equipment repair without any
  documentation as to what was repaired or if it
  was needed

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Fraud in Student Activity Funds

• Harpeth Middle School
• Bookkeeper apparently embezzled at least
  61,065.41
• Failed to record collections in accounting
  records
• Failed to make deposits
• Exchanged non-reoccurring checks for cash
• 1,784 discount cards with a value of 15,638 were
  unaccounted for

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Fraud in Student Activity Funds

• Proceeds from two basketball tournament games not
  accounted for
• Concession from one basketball tournament game
  not accounted for
• Bookkeeper informed a coach that his athletic
  fund was short so he went to the bank and
  borrowed 1,500 and gave it to the bookkeeper to
  deposit-----she didnt
• Made false entries to write off over 7,000 of
  bad checks

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Fraud in Student Activity Funds

• Bookkeeper altered receipts
• Out of 9,650 recorded as being a receivable from
  students for fund raising projects, at least
  5,356 was confirmed as paid
• Auditors found several collection envelopes from
  the spring 2005 fundraiser in a wastebasket in
  the former bookkeepers office, despite explicit
  instructions by auditors to her to retain all
  such records

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Fraud in Student Activity Funds

• Several teachers stated that they had previously
  voiced concern to the principal regarding the
  bookkeeper, but no action was taken

41
Fraud in Student Activity Funds

• Hendersonville High School
• Bookkeeper was indicted by the Sumner County
  Grand Jury for one count of theft over 60,000
• Bookkeeper apparently misappropriated 76,122 in
  school collections
• Failed to record deposits
• Switched checks for cash

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Fraud in Student Activity Funds

• Used Wal-Mart gift card for personal purchases
• Altered collection logs
• Recorded collections in wrong accounts or made
  inappropriate transfers between accounts in an
  attempt to conceal misappropriations
• Auditors found two original receipts totaling
  over 6,000 that were not recorded nor deposited

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Fraud in Student Activity Funds

• Granberry Elementary
• Parent-Teacher Organization
• PTA/PTO president indicted by a Davidson
  County Grand Jury for one count of theft over
  60,000
• Former president diverted more than 140,000
• Acknowledged to auditors that she took between
  75,000 to 100,000

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Fraud in Student Activity Funds

• Check issued to a fund raising vendor in the
  amount of 3,250 deposited directly into her
  personal bank account
• Opened unauthorized bank account
• Collected 720 for medical expenses of terminally
  ill child and deposited into her personal bank
  account

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Fraud in Student Activity Funds

• Misplaced fund raising collections of 25,000
  cash
• Forged second signature on approximately 150
  checks made payable to herself
• Altered receipts
• At the time of the indictment, organization
  discovered that they had outstanding accounts
  payable of 45,500 and had over-drafted their
  bank account by 7,343.59

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Fraud in Student Activity Funds

• Why is so much theft occurring in schools?
• Because
• Thats Where the Money Is
• (Combined with Opportunity)

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• Do you know where you school funds are?
• HAVE A NICE DAY!