Locals fight fraud
When cities and counties are struggling to balance their budgets, losing money to fraud becomes a larger threat. In the last few years, many local governments have redoubled efforts to detect and stop fraud among employees, using tools such as telephone hotlines to take tips from the public and internal whistleblowers.
Tips and complaints from fellow employees and residents are the most common methods by which fraud in government is initially discovered, according to the Austin, Texas-based Association of Certified Fraud Examiners (ACFE). ACFE statistics show that tips, usually by employees who know the offender, lead to the initial detection of 40 percent of fraud cases. Internal and external audits combined only detect 18.5 percent of fraudulent activities.
The Long Beach, Calif., Office of the City Auditor set up a hotline after members attended a 2006 ACFE conference. Time card fraud is among the most common complaints to the hotline, says audit department spokesperson Danica Rogers. The city uses a third-party hotline provider to assure employees of anonymity. “[People calling the hotline] don’t want to worry that we’re going to figure out who they are,” Rogers says.
Most fraud occurs because of a failure of internal controls, says ACFE President James Ratley. For example, a community might lay off one employee in the police department’s confiscated property storeroom in an effort to cut costs, leaving one remaining employee in charge of record-keeping and custody of an asset. In that situation, the department loses the separation between the recording of an asset and the custody of an asset, which creates an opportunity for fraud to occur.
Another high-risk situation for fraud is when a public official has some control over a government-contracted vendor’s access to income, which can lead to bribes and kickbacks. When a tipster indicates a bribe or kickback occurred, fraud examiners look to see if official records were changed. “Generally, your records are not going to be correct,” Ratley says. “[The fraud perpetrator has] to falsify something, somehow, somewhere.”
Local officials have a greater sense of urgency to combat fraud today, in part because of the recession, Ratley says. “With the decline of tax dollars in the midst of recession, it is even more important today that you have implemented a solid fraud prevention program,” he says.
Adolfo Pesquera is a San Antonio, Texas-based freelance writer.