David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence, litigation support and expert witness testimony services in Philadelphia and the Delaware Valley. 

Last week, in the first of this two-blog series on municipal fraud, Certified Fraud Examiner David Anderson presented the details of several municipal fraud cases that succeeded due to poor internal controls. He also presented recommendations as to how such frauds could have been prevented.  This week, he discusses several more municipal frauds he has investigated and offers additional recommendations for preventing such frauds.

Fraud #1: The newly-hired Township Manager of a large township, in retrospect, appears to have planned to commit fraud from the day he was hired.  He began his tenure by meeting individually with many of the township’s key employees, advising each person that he would be carefully watching the employee’s performance, also advising each person he would terminate the employee if he was unhappy with the employee’s performance.

He then began his fraudulent schemes.  His first involved the relocation reimbursement in his contract.  The township had agreed to pay him $5,000 towards his relocation costs.  Instead, he submitted, among other things, his mileage, hotel bills and meals costs for house hunting trips.  He submitted his entire moving bill.  He then submitted the closing statement from the sale of his old house, requesting reimbursement for all the closing costs. Because of his position, and the fear he had instilled in the township’s employees, he was reimbursed for all these expenses (which were grouped into employee benefits costs so that the Board did not see any of these individual items).

His next scheme involved year-end bonuses.  He submitted a bonus list to the township supervisors which included a $25,000 bonus for him.  The supervisors reduced his bonus to $10,000 and approved the remaining bonuses. No problem. He simply reduced the approved bonus amounts of other township employees (primarily ones whom he did not like) and paid himself the full $25,000 bonus.  He did the same for yearend bonuses each year he was at the township.

He employed several other fraudulent schemes including purchasing Phillies season tickets – allegedly to reward township employees.  Instead, he treated his family and friends to games, and sold some of the individual game tickets online (pocketing the proceeds).  Additionally, he routinely submitted restaurant bills he had paid with his personal credit card for reimbursement, claiming that he was conducting township business (when in fact, he was entertaining family and friends).

An anonymous complaint finally tripped him up.  Our investigation revealed that several township employees were aware of each of these frauds but failed to inform anyone because of their fear that the township manager would terminate them if they came forward.

Fraud #2: The newly hired Director of Finance of a municipal utility authority was not happy that the salary she had accepted was less than the salary she had requested.  No problem.  She simply informed the outside payroll company that her annual pay was the higher unauthorized amount.  And, for years, she collected this increased amount plus the annual percentage salary increases (which resulted in even higher pay than if she had started being paid the authorized salary amount).

This, apparently, was not enough.  She routinely took more vacation and sick days than were authorized.  And, she “gamed” her overtime.  She would take vacation and/or sick days (including time off in lieu of overtime) during a week, and then come in to work on the weekends.  Since her total hours each such week exceeded 40, she earned overtime for extra hours.  However, she never actually worked over 40 hours in any of those weeks.

Her scheme was only discovered after she retired, and the state pension office noticed the discrepancy between her reported pay and her initial authorized pay.

Fraud #3: A township supervisor had the township maintenance crew regularly cut his lawn, snow blow his driveway and sidewalks, and make paving repairs to his driveway and sidewalks.  He also arranged the same for several friends, including one who had his business’s parking lot regularly plowed, repaired and even resurfaced.  In return, the township supervisor regularly pressed and persuaded his fellow supervisors to approve higher than normal salary increases and bonuses for the head of the maintenance crew.

This fraud was discovered when a neighboring businessman saw the resurfacing by the township maintenance crew and asked the township manager (who knew nothing about the fraud) if he could also have his parking lot resurfaced.  The township manager investigated the matter and uncovered the ongoing fraud by the township supervisor and head of the maintenance crew.

Each of these frauds were made possible because lack of adequate oversight.  This points out the need for Board/Commission/Council oversight of senior managers, especially newly hired ones.  Additionally, there should be regular financial review of financial transactions.  Other recommendations include:

• Implementation of a policy prohibiting fraud.
• Implementation of anti-fraud training for employees.
• Implementation of a cost-efficient third-party tip hotline so that employees, vendors and others could provide anonymous tips regarding potential fraud, waste and/or abuse.

(Note these are the same as some of the recommendations that were made to combat the fraud discussed last week in the first part of this series). 

Each of the above recommendations is relatively low cost in relation to the potential fraud losses that municipalities and other local government organizations face.

If you require the services of a forensic accountant, a Certified Fraud Examiner, or any other financial expert to help with fraud investigation, fraud deterrence, or other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.