Insights: Article

When everything goes wrong, what do you do now?

By Doug Cash

December 11, 2018

A recent story published by Denver7, the ABCtelevision affiliate for Denver, discussed allegations of embezzlement, backdoor deals and other law violations in the city of Englewood. It’s a story that should raise concerns about the potential of these types of activities taking place in any governmental organization, no matter the size.

Long-Term Comfort
Englewood is a home rule municipality with a population over 30,000 and annual revenues of $87 million as of 2017. There are more than 25 different divisions, which makes for a lot of moving parts. Anytime you have lots of moving parts inside an organization, you have opportunities for problems to occur. Governmental organizations are well known for having long-term employees, many of whom are working in high ranking positions. Past history of fraud has told us the highest dollar losses in organizations can be traced to long-term trusted employees. This trust can be enhanced when organizations are affected by high turnover rates in staff positions. When this occurs, the mentality of “that’s the way we do things” can become commonplace. With this mentality, many are uncomfortable asking “why” something is done a certain way or to challenge any questionable activity. This situation can allow fraud or inappropriate conduct to establish itself. If not challenged, the entire organization can be overrun by individuals more intent on enriching themselves than carrying out the duties of their office.

This enrichment can surface in the form of unauthorized payroll payments or expense payments, shortage of cash, false vendors, ghost employees, kickbacks, bid rigging, bribery and extortion to name a few common schemes. With the longevity of employees, these schemes can take years before they are discovered. An incident in Dixon, Ill., became a great example of a scheme lasting long term and costing a city $53 million.

What to Do
There are no easy answers, no magic words, no short-term solutions to solve issues which have gone unchecked for years. However, if an organization wishes to prevent this type of activity or put an end to it, there are steps that can be taken. To start, it must begin with true commitment to prevent and eliminate this type of activity, and this must start at the top of the organization. If the top of the organization isn’t committed, there is no way to either prevent or eliminate these issues. If the commitment does exist, there are ways to help an organization establish a workplace which will thrive and respond to issues as they occur.

The following are ways to begin process.

  • Establish or enhance pre-employment background checks.
  • Establish or update policies and job duty descriptions.
  • Establish or review the organizations whistleblower policy and hotline.
  • Conduct thorough internal control examinations.
  • Conduct routine fraud risk assessments.
  • When needed, conduct forensic accounting examinations to resolve allegations of misappropriate behavior.
  • Hold all employees, no matter their position or tenure, accountable for their actions.

Eide Bailly has the resources and specialists to assist any organization with establishing, reviewing or updating policies, assisting with employment background checks, establishing a whistleblower hotline, conducting internal control or risk assessment examinations as well as complete forensic accounting examinations when appropriate. Contact us for complete information on the services we can provide your organization.

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