1. Fraud and Ethics: Not a question of whether or not we should comply Presented by: Elizabeth G. Henry, Internal Auditor Laredo Independent School District August 9, 2011

2. What is Fraud?  Fraud is defined: -the intentional false representation or concealment of a material fact for the purpose of inducing another to act upon it to his or her injury. CFC (Local) Accounting Audits  Occupational fraud- the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets* (Association of Certified Fraud Examiners) *2008 Report to the Nation on Occupational Fraud and Abuse. Copyright 2008 by the Association of Certified Fraud Examiners Inc. *2008 Report to the Nation on Occupational Fraud and Abuse. Copyright 2008 by the Association of Certified Fraud Examiners Inc.

3. Fraud Triangle Opportunit y Incentive/ Pressure Rationalization

4. Opportunity Unethical tone at the top Lack of supervision Knowledge of weak controls Ineffective controls Belief “won’t get caught”

5. Incentive/Pressure Desire for status symbols—house, car, etc. Unusually high personal debt Excessive gambling habit Alcohol or drug problems Undue family or peer pressure to succeed Pressure placed on administration/directors to perform

6. Rationalization Employee feels the district owes them; therefore they compensate themselves Feeling of insufficient recognition for job performance Personal need for more money It’s the employee’s way of rewarding themselves

7. What makes us vulnerable? Lack of segregation of duties Insufficient funds for program implementation Lack of school management supervision Lack of internal controls Untrained personnel Management’s thinking “he/she wouldn’t do that”

8. Examples of Fraud Manipulation of collections of accounts Unauthorized use of funds/credit cards Alteration/falsification/destruction of documentation and/or school records “Borrowing” district funds and/or any assets Taking copy paper, pencils, etc. home

9. “Red Flags” Altered/missing documentation Untimely deposits Fictitious vendors Non-compliance with established rules and regulations Incomplete reports and/or missing information

10. Observations over the years Campus bookkeeper took close to $19,000 in C & SA funds Campus held fundraisers, however deposited the monies in faculty account; PTO account Campus held fundraiser during the school day and deposited the monies in the PTO account Unauthorized editing of employees’ time cards

11. …continued Cheerleading Sponsor(s) have left the campuses indebted to vendors (all done with the Principal’s authorization for credit) “Borrowing” of student monies Secretary altered daughter’s time cards- reflecting at times as though she was working when in reality she was not District employee performing “non-district duties”

12. District Administration / Operations Human Resources – Teachers & other benefits Information & Technology Services TransportationPurchasing/procurement Food & Nutrition Services – Cafeterias Specialists – speech therapist, para’s – prof.’s, etc. Curriculum – Testing, Grades, Teaching Nurses – health services Safety and security Maintenance – custodial and others Risk Management – insurance Finance – A/P, A/R, Investments, Payroll

13. Be aware and stay alert Know the “Red Flags” of fraud in your area Be familiar with the types of fraud TAKE CHARGE—you are an administrator, put controls in place for prevention

14. Steps for Prevention Management sets the tone- Establish ground rules Conduct a Review of: Overall Campus/Department internal controls-ask yourself- how strong are they? Ensure there is an adequate segregation of duties Provide adequate training Enforce policies and procedures SUPERVISE! MONITOR!

15. Board Policies Follow up and familiarize yourself with the following: CAA (Local) Fiscal Management Goals and Objectives Financial Ethics CFC (Local ) Account Audits; (Legal) DH (Local) Employee Standards of Conduct; (Legal) DH (Exhibit) Employee Standards of Conduct DH ( Regulation) Code of Ethics and Standards of Conduct Board Policies

16. Fraud Policy “All employees are responsible for the detection and prevention of fraud, misappropriation, and other irregularities. Each administrator shall be familiar with the types of improprieties that might occur within his or her area of responsibility, and be alert for any indication of irregularity.” CFC (Local) Accounting Audits

17. Fraud Adds Up---Responsibility As Campus Principals, you are responsible for what happens at your campus As Directors, you are responsible for what happens at your department As District employees, we are responsible for our actions Be aware of what is happening at your campus/department

18. So what if I commit fraud? “If an employee is found to have committed fraud or financial impropriety, the Superintendent or designee shall take or recommend appropriate disciplinary action, which may include termination of employment.” CAA (Local) Fiscal Management Goals and Objectives Financial Ethics

19. Keep in mind It is impossible to cover all possible situations as no set of rules and procedures will ever include such, therefore, the District must rely upon its employees’ good faith, good judgment and high moral standards as the main principle guide to ethical conduct. This is expected from our taxpayers, as we are public servants.

20. Acknowledgement Z I acknowledge that I as an employee of the Laredo Independent School District have read and understood this presentation as well as the board policies addressed and any related Fraud and Ethics related policies.:

21. Thank You If you have any questions, feel free to contact our department– Elizabeth G. Henry – ehenry@laredoisd.org ehenry@laredoisd.org –Internal Auditor Angelica R. Salinas – asalinas@laredoisd.org asalinas@laredoisd.org –Staff Auditor Roxanna R. Pedraza – rrpedraza@laredoisd.org rrpedraza@laredoisd.org –Staff Auditor 2520 E. Elm 956-273-1460