CBS Miami reports that a former Fort Lauderdale, Fla., police officer has admitted to falsifying military leave and earnings statements with the city so he could falsely assert his rights under federal law to return to his job. Under a program for employees who served military duty after 9/11, the city of Ft. Lauderdale supplemented the pay of reservists on active duty to match their full salary. Federal investigators claimed that the former police officer falsified military documents for eight years to show that he was under orders to continue mandatory service, when in fact his service was voluntary. The investigators also claimed he falsified pay information submitted to the city and was able to get supplemental pay for years beyond his legal entitlement. The former police officer is facing up to 20 years in prison.
- Fraud risk assessments prepared by internal auditors should consider the risk of fraudulent activity within special programs involving meritorious objectives. In this case, the city had established a program to adequately compensate law enforcement and military personnel post-9/11.
- The existence of adequate controls over the eligibility of ex-reservists to supplemental pay is a key issue in this case. Although not addressed in the news report, one could assume that individuals had at least some degree of latitude in preparing and submitting leave and pay information in support of their claims. Auditors should regularly assess and question the effectiveness and efficiency of such controls through periodic audits. In this case, a targeted audit with specific audit criteria aligned to scrutinize the validity of mandatory versus voluntary service and the accuracy of claimed pay levels against the records of past employers could have detected the fraud earlier.
- Employee access to supplemental pay and benefits programs based on special conditions or past service in other organizations is a fraud red flag area that, unfortunately, can be exploited for personal benefit. While desirable, it may not always be possible or cost-effective for employers to establish comprehensive computer-based compensation and benefits systems for all programs and employees. However, it is important for program managers and auditors alike to focus on these high-risk programs and benefits.
- As a general principle, employers should aim to put automated controls, processes, and systems in place and establish ways to cooperate with other employers around the exchange of employee compensation and benefits information, wherever feasible. Auditors can help by conducting assessments and advising management on how well the controls, processes, and systems are working. Also, employees should not have the ability to modify their pay records — many techniques are available to employers as preventive controls. At a minimum, program eligibility and payments should be subject to additional scrutiny, such as a second supervisory review and approval.