​A Tutorial of Fraud

Public schools need oversight, internal control, and conflict of interest policies to protect against fraud by former employees turned contractors.​

Comments Views

​Federal prosecutors have charged a former Detroit Public Schools (DPS) grant development director with billing the school district US$1.275 million for tutoring services that were never delivered, the Detroit Free Press reports. According to court documents, after-school tutoring companies created by Carolyn Starkey-Darden submitted fake documents that included false test scores and forged attendance records and parental signatures between 2005 and 2012. During that time, three of those companies received US$6.1 million in federal grant money to improve tutoring at schools deemed in need of improvement, but the U​.S. Attorney alleges that at least US$1.2 million was obtained illegally.

Lessons Learned

This story describes a fraud prosecution based on a federal investigation concerning the DPS. Readers cannot be completely satisfied with the outcome, given how long the fraud went undetected, and an apparent lack of attention to addressing its most likely root causes — insufficient oversight, a rigorously constructed/enforced conflict of interest system, and weaknesses in internal controls, especially over financial and contract management.

  • Oversight weaknesses. The U.S. educational system is supported by a patchwork of widely varying requirements for the structuring of school district boards, including for ​​roles and responsibilities and the existence of internal audit functions. School districts are more likely to detect fraud at an early stage when they have vigilant, active boards and committees, supported by a robust internal audit function that regularly conducts risk-based audits of the duties of grants administrators — and principals, too — as well as financial and contract management controls. Furthermore, the school board needs to exercise oversight over the organization's operations, and committee meetings should reflect regular discussions of financial operations, contracting, and personnel policies, including the results of monitoring, review, and audit. An absence or lapse of such oversight should raise the question of consequences for those who did not discharge their responsibilities appropriately.
     
  • Poor financial management/contracting controls. The fact that doctored test scores, forged attendance records and parental signatures, and fake individual learning plans were submitted repeatedly on forms required by the DPS, yet went undetected, represents a gaping hole in the school district's controls. Was anyone cross-checking any of this data before approvals and money were handed over? In fact, shouldn't the school board and involved parents be providing this information primarily, rather than private companies seeking grants and profits? I also suspect that grants and financial management review duties were not segregated adequately, and there may have been gaps in the board's financial/contract management policy framework.
     
  • A rigorously constructed/enforced conflict of interest system. One can debate the appropriate level of rigor needed to protect the interests of young students, but I submit that a high standard needs to be established and enforced. In this story, a relatively senior school official was able to set up multiple private companies — some even before she retired — with the alleged aim of taking advantage of her experience and contacts to obtain significant dollar value contracts with her former employer. Numerous countries, including Canada, have conflict of interest policies for public officials that include bans and cooling-off periods ranging from one to five years before a former senior employee can engage in a for-profit arrangement with his or her former employer. Such measures may be controversial, but in the context of this story, they might have been the most effective in preventing a serious fraud. At a minimum, a high standard of scrutiny of such arrangements needs to be applied before they are approved.​

Internal Auditor is pleased to provide you an opportunity to share your thoughts about the articles posted on this site. Some comments may be reprinted elsewhere, online or offline. We encourage lively, open discussion and only ask that you refrain from personal comments and remarks that are off topic. Internal Auditor reserves the right to remove comments.

 

 

Comment on this article

comments powered by Disqus
  • MNP_Natonal Can Conf_Sept2017_Premium 1
  • SCCE_Aug2017_Prem 2
  • IIA FallTraining_Sept2017_Prem3