Let’s focus on the two terms of – Misappropriation and fraud Fraud, cont.
What is MISAPPROPRATION OF FUNDS?
Definition of Misappropriation “In law, misappropriation is the intentional, illegal use of the property or funds of another person for one's own use or other unauthorized purpose, particularly by a public official, a trustee of a trust, an executor or administrator of a dead person's estate or by any person with a responsibility to care for and protect another's assets (a fiduciary duty).”
Definition of Fraud Black’s Law Dictionary defines fraud as: “all multifarious means which human ingenuity can devise, and which are resorted to by one individual to get an advantage over another by false suggestions or suppression of the truth. It includes all surprise, trick, cunning or dissembling, and any unfair way by which another is cheated.”
Fraud, cont. DISSEMBLING Adoption of a false appearance
Fraud, cont. WHY ARE CHARTER SCHOOLS A TARGET FOR FRAUD ?
Fraud, cont. What Should We Be Looking For?
Fraud, cont. What are Some Examples of Fraud? List a few…
Fraud, cont. Falsified or exaggerated attendance Not recording vacation or sick time off Paying vendor “buddies” for no work product Purchasing supply items for personal use Unsubstantiated travel expenses Duplicate or fictitious employees
Fraud, cont. Auditors that actively plan and search for fraud
Fraud, cont. What ingredients are needed for fraud? How many ingredients?
Fraud, cont. THREE INGREDIENTS NEEDED FOR FRAUD
Fraud, cont. MOTIVE
Fraud, cont. OPPORTUNITY
Fraud, cont. ACCESS
Fraud, cont. WHAT IS SO IMPORTANT ABOUT motive, opportunity, and access?
Fraud, cont. IT TAKES A PERSON TO ACT WHO?
Fraud, cont. Think about these three things when planning an audit or administering oversight WHO HAS OPPORTUNITY? WHO HAS MOTIVE? WHO HAS ACCESS?
Access or No Access?
Fraud, cont. OPPORTUNITY and ACCESS is limited with a good system of what?
Internal Controls We have all heard the words “internal controls” over and over. Simple internal controls do a lot in helping to prevent fraud and errors that look like fraud.
Internal Controls, cont. Simple INTERNAL CONTROLS help mitigate fraud, improve protections against motive, opportunity, and access, as well as shield employees from accusations of fraud.
What Do Internal Controls Include? An organizational culture that promotes awareness and takes fraud seriously at all levels
What Do Internal Controls Include?, cont. Fraud detection, oversight, and auditing is more about awareness and observation than checklists.
What Should We Consider? What are some audit and oversight metrics that should be considered when evaluating a charter school’s financial performance?
How Do We Evaluate Performance? How do you evaluate your charter school’s performance and ability to continue as a going concern?
How Do We Evaluate Performance?, cont. Evaluate the audit report? Compare the charter’s budget, first interim, second interim, and unaudited actuals?
Better Charter Oversight and Auditing Metrics Commonly Evaluated Evaluate audit report Compare budget, 1 st, 2 nd, and unaudited actuals More Details Prepare a comparison of audit reports and trend analysis Compare budget and unaudited actuals within the year and against the prior year
Better Charter Oversight and Auditing Metrics, cont. Trend analysis at the object code level. Common size analysis with revenue and expenses. Examine AGED accounts payable at the Individual Vendor level. Audit ADA WITHIN the charter’s attendance program. Evaluate the charter each year as a going concern.
Better Charter Oversight and Auditing Metrics, cont.