Saturday January 12, 2013

ZEKE WRIGHT

Staff Writer

CAMBRIDGE, N.Y. -- Confidential reporting hotlines can uncover fraud in half the time as other safeguards, according to certified fraud examiner Christopher Rosetti.

Without ensuring compliance, Rosetti said codes of conduct and personnel policies are not useful given an individual's ability to rationalize bad behavior. And if there's a sense that fraud is not a priority, the chances are greater that instances will go undetected, he said.

"When people don't see the enforcement ... they think people don't really care, and that's the attitude they take. ... If people know you care, they'll say something."

In a presentation to Cambridge Central School board members Tuesday, Rosetti said confidential reporting was proven in the business world to be the most effective tool at combating fraud, abuse, and waste. But board members and staff queried whether a hotline made sense at a small school district, and whether or not such a measure would create an "atmosphere of distrust."

Meanwhile, the state comptroller's office has a toll-free phone number already in place to report possible fraud or abuse, although that hotline encompasses all public entities statewide.

A fraud examiner, certified public accountant, and partner at BST Advisors, LLC -- an Albany-based financial and management consulting firm -- Rosetti was invited to speak after local officials sat in on a similar presentation at the New York State School Boards Association's annual convention last October in Rochester.

After earlier debate about the trip's cost and whether to send two representatives, CCS board President Kerri Brown and Vice-President Lillian Herrington attended that convention and returned with good things to say about the experience. Last November, Brown asked whether board members would be interested in the discussion given the board's fiduciary responsibility.

NYSBA Deputy Director of Policy Services Linda Bakst said Wednesday she was aware of school districts around the state that have contracted for confidential reporting hotlines. Without numbers, "I do know many districts have set that up," she said, especially following 2005 state law in the aftermath of a high-profile case of embezzlement at a Long Island school district, where in excess of $11 million was swindled.

Known as the five-point school financial accountability plan, the 2005 legislation strengthened internal and external controls and placed most of that burden on local districts. Speaking Wednesday by telephone, Bakst agreed a hotline complemented other checks and balances. "It's part of the whole approach."

Rosetti said contrary to creating distrust, a confidential reporting system reinforced unity because most people are honest and ethical -- and willing to step forward, at least anonymously.

Citing a biennial survey by the Association of Certified Fraud Examiners (Rosetti sits as chair on that association's foundation), the fraud expert said the average organization lost about $6 a day per employee to fraudulent behavior, which, at a school district, can including skimming; billing, payroll, and expense reimbursement schemes; and check tampering and larceny.

"My intent is not to sell fear ... but a lot of times that works," Rosetti said. He said the cost of contracting with a reporting service typically ranged from $2,000 to $20,000 annually. No plans have been made in Cambridge to date.

Comptroller spokesman Brian Butry said Friday his office completed about 400 audits annually -- 10 percent of the state's estimated 4,000 public entities. As a result, they rely on tips from the state's hotline as "part and parcel" of uncovering waste. "That can potentially end up with us investigating or looking into (a case)," he said. Last year, Butry tallied nearly 2,000 reports to his office between mail, electronic communications, and the phone line which is staffed Monday through Friday and available at 1-888-672-4555.

The ACFE's 2012 report, based on 1,388 cases of occupational fraud internationally, found 6.4 percent of reported incidents occurred in education (below banking/financial services, government/public administration, manufacturing, and health care, in that order).

Last October, a janitor at CCS was arrested and charged in the theft of two laptop computers from a school library which were discovered missing during a regular inventory check. That employee was fired but those computers were not recovered.

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