Institute of Management Accountants Mid-America Council Bob Grogan, CPA, CFE Government Fraud April 25, 2014 Office of the DuPage County Auditor
Historic Fraud Anyone ever hear of Dixon Illinois? In 1983 Rita Crundwell was appointed the treasurer- comptroller for city. She had a great reputation; for instance in 2011 one of the city commissioners praised Crundwell for her stewardship of city finances, saying: "she looks after every tax dollar as if it were her own."
Historic Fraud Stole $54 million Bank and Accounting Firms settle for $40 million Rita sentenced to 20 years Looking for Bank Accounts Follow the MONEY Untold story about the Levy
4 companies bid for work Contract awarded to low bid Prices based on area and thickness of asphalt patch Less than 4” = $12.95 More than 4” = $2.25
Audit Findings Asphalt Repairs Thin patch = $12.95 Thick patch = $2.25 Un-balanced pricing, more material was less money, per square foot
Audit Findings Asphalt Repairs Supervisor was friend of company owner Auditor interviewed staff Supervisor authorized payment of invoices
Audit Findings Asphalt Repairs The invoice prices did not agree to the bid More than 4” should be $2.25 Invoice price is $12.95 On this invoice, vendor overcharged $22,555
Audit Findings Asphalt Repairs The auditor identified other erroneous invoices Auditor refused to approve several other invoices totaling $65,000 The vendor went to court seeking payment County refused payment Vendor dropped lawsuit, went out of business County HIRED the foreman!
Audit Findings Repair Work Begins with a clerk noticing “INVIOCE” spelled wrong Repair/replace siding on building Not bid, three quotes Investigation shows business address is a residence Problem? Unusual – no Social media search
Audit Findings Repair Work Social media search Owner is engaged to staff member daughter Staff member worked overtime on weekend to “supervise” the job Materials’ receipts were paid for by staff member Vender payroll showed no payments to 2 nd laborer
Audit Findings Repair Work Withheld final payment Rationale “Laborer might come back to be paid” Owner charged with operating a business without a license Employee suspended
Audit Findings AUDIT HOTLINE “I didn’t know who to tell” Expands information collected Anonymous Inexpensive New Hires Lunch Room
Audit Findings Welfare Fraud Recipient claimed that father/husband was not in home Investigation showed father still lived with family Conviction for fraud Recipient listed neighbor’s address Husband using home address Actually living together Receiving more tips from the Audit Hotline about potential welfare fraud.
Audit Findings Capital Equipment Purchase Replacement aeration equipment used to purify waste water was needed by the Public Works Department A bid for 3 turbo blowers used in the aeration process was prepared
Audit Findings Capital Equipment Purchase 4 vendors responded to the bid The lowest cost bids were disallowed because the Department wanted parts unique to one vendor brand The specific brand was not a mandatory requirement in the bid specifications The highest bid was selected to win the contract
Audit Findings Capital Equipment Purchase The County Auditor became aware of allegations of wrongdoing by the Public Works Department in preparing and awarding the bid.
Audit Findings Capital Equipment Purchase The salesman represented several equipment vendors The salesman assisted in writing the bid specifications Only the salesman’s clients had a likely chance to meet the bid specifications The allegations included:
Audit Findings Capital Equipment Purchase The audit investigation found: The allegations were true The salesman represented 6 County vendors There were 7 contracts with the 6 vendors totaling over $2 million 6 of the 7 were subcontracts or no bid, sole source contracts
Audit Findings Capital Equipment Purchase The County Auditor provided the results of the investigation to the Committee The contract was awarded to the lowest bidder for $465,000 The County saved $75,000, and the bid process was fair to all bidders
A professional services (no bid) contract was awarded for construction documents for window replacement at the County nursing home Audit Findings Architectural Services The vendor’s fee was 10% of project cost, $190,000 The vendor would also oversee the construction
Audit Findings Architectural Services The contract required the vendor invoice to show the fee for each project phase and the percentage of phase completion The contract required the vendor to provide actual payroll records and detail of reimbursable expenses related to the project
Audit Findings Architectural Services Pre-audit review of vendor invoices showed suspicious activity The contractor did not install any windows when the vendor invoiced for construction observation Vendor payroll records proved overbilling
Audit Findings Architectural Services $88,945, labor/costs invoiced to date VENDOR RECORDS 595 hours worked on project Average wage of $170 per hour $25,000, actual labor costs and expenses incurred to date Average wage of $99 per hour 247 hours worked on project VENDOR INVOICE
Audit Findings Architectural Services The vendor was charging double the actual number of hours worked on the project The County was invoiced for the most skilled employees but the work was actually performed by lower level employees The County refused to pay the remaining $100,000, of the contract
Internet Information DuPage County Auditor http://www.dupageco.org/auditor/
THANK YOU! Contact Info: Bob Grogan, CPA, CFE firstname.lastname@example.org Ph: 630-407-6075 421 N. County Farm Road Wheaton, IL 60187