With the reduction of state funds, fallout from COVID-19, furloughs, layoffs, personnel turnover and a general lack of education in government accounting, the opportunities for others to take advantage of school resources are growing every day. Fraud in K-12 school districts can occur easily and be difficult to detect.
Sources of School District Income Prone to Fraud
The three primary sources of educational funding and income for school districts are:
For parents and educators, these funds are to be used for one purpose: to educate and provide support for their students. To a fraudster, these funds can be an unlimited cash account. This results in a deficit for the tools, resources and programs that teachers rely on to do their job, which worsens the issues that they already face with a general lack of funding.
These facts create a desire for parents, teachers and office personnel to ask the question:Is fraud happening at my school district during the COVID-19 pandemic? Unfortunately, this is a question that many school districts struggle to provide a definitive answer for.
Set your students up for success and let us help protect your schools from fraud.
Common Types of Fraud that can Occur in School Districts
Most individuals do not know the types of fraud that can occur specifically within school districts or how to determine if fraud is occurring. As COVID-19 has reduced the amount of in-person trainings provided, we have summarized key points below in order to assist school districts during these challenging times.
Classified as the number one type of fraud scheme in governmental entities according to the ACFE 2020 Report to the Nations, corruption is the hardest type of fraud to prove. Corruption typically exists when two individuals are involved in the crime, either voluntarily or involuntarily. Examples of corruption related to school districts include:
Having a partner in crime makes it easier for fraudsters to cover up evidence, making this issue very difficult to reveal. However, due to the current work-from-home environment, this fraud might be easier to capture than before. With organizations conducting video calls using Microsoft Teams and Zoom, in addition to communicating with emails, phone calls and text messages, the chance for a private, unrecorded conversation to happen in person has lessened dramatically.
Embezzlement of School Site or ASB Funds
When people think of fraud, it’s typically the sort of fraud they hear about on the news. That publicized and reported fraud is usually embezzlement of funds. Unfortunately, there are many embezzlements that do not hit the newspapers due to the smaller dollar amount stolen.
The good news is this fraud can be prevented or detected by parents and teachers. However, due to the current pandemic, many individuals are not physically in the office, which can lead to more opportunities for this to occur. For example, any cash that hasn’t been deposited yet is most likely sitting in the safe. If the individuals working in the office have access to the safe, they now have an unlimited amount of time to take what they want.
To help keep this from happening, school districts should:
Credit Card Fraud
As stay-at-home activities have become the new normal, so has an increase in online shopping and credit card transactions. Unfortunately, as more and more people experience financial strain, they may be tempted to use their school district credit card instead of their own for personal purchases.
Here are a few ways to prevent and detect credit card fraud:
Credit card fraud that occurs in school districts usually happens because districts trust their employees’ decisions or because the districts do not fully understand the purchase. If the district employee is unable to explain the purchase to a parent and have the parent agree with it, then both the purchase and the employee should be questioned.
A ghost employee scheme typically occurs in two ways. The first is when an employee for the district has been terminated. Instead of deactivating the employee, the fraudster changes the employee’s address to their own or a different one and continues processing their payments. The second way includes the fraudster creating a fake person in the system. Both can go undetected due to the reviewer’s trust in the district’s personnel and their inability to remember all the teachers or personnel in a pay period. However, due to the COVID-19 pandemic, districts have an opportunity to verify that trust.
Districts can perform the following tasks to help determine if a payroll scheme is occurring:
Personal Use of Government Funds, Assets or Facilities
Fraud does not solely mean stealing money. Fraud can also occur through use of school district possessions or resources for personal gain in different ways. For example, a cooking teacher could inappropriately use the school’s food supply to make food for their own business. Another example would be an employee using a district vehicle to make Uber pickups for extra cash. The opportunities for fraud to occur are endless.
It is more cost effective to prevent fraud than it is to detect it after the fact. School districts should lock up all assets, allowing only few individuals access. This should include laptops that are not being used by the students or staff, keys to the district buses and vehicles and common school supplies. Due to the extended period many are spending out of the office, anyone could be using school supplies or the district vehicles without being detected. Locking up these essentials would help prevent these schemes from occurring.
Prevent Fraud in Your School District
There are a lot of questions that can’t easily be answered during this pandemic, but hopefully these tips help you feel more comfortable addressing fraud risks within school districts. Could your district have fraud going undetected right now? The answer may be yes; however, there are ways to prevent and detect these common fraud schemes so your district can continue to succeed.
In a time when peace of mind is difficult to find and budgets are tight, you can still use forensic accountants.