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Fraud – Are You At Risk?

Districts should be proactive when dealing with fraud

Kentucky School Advocate
March 2019

By Matt McCarty
Staff writer

Jody Maggard, finance director for Perry County Schools and KSBA training cadre member, had some advice for school districts:

“Don’t be reactive to fraud. The answer is to be proactive.”

Maggard presented KSBA’s “Fraud – Are You At Risk?” session during the 2019 Annual Conference. While 92 percent of people who commit fraud have never previously been charged, Maggard noted that there are some red flags that could mean someone is stealing from an employer. The signs include financial stress, a control freak, someone who is too close to vendors, someone living beyond their means or has a personality change. (See chart at left for more behavioral red flags.)

Fraud is far more applicable to school or district managers than to the school board members, Maggard said. Ways to minimize the risk of fraud is to review with management internal controls and segregation of duties.

Lack of internal controls accounts for 32 percent of fraud cases. Lack of management review (20 percent), overriding internal controls (19 percent) and incompetency in key roles (7 percent) are other factors.

Maggard warned that fraud often occurs with gate receipts for ball games. Districts should give a ticket to anyone who pays admission and then tear the ticket before the patron enters the game. And, he said, schools should have two people working the gate – one person to handle the money and another to take the tickets. At the end of the night, the number of tickets sold should match the amount of money collected.

Three myths about fraud are that it only happens in large organizations, that it’s usually committed by a person who has a criminal record and that it will be detected by an audit. In fact, external audits detect only 4 percent of fraud.

“It’s hard to audit money that’s never been transacted,” Maggard said.

In addition to stealing funds, fraud also includes theft of goods, theft of time and kickbacks and gratuities.