Fraud's Finer Points: Case history applications
In my state, Washington, students in public schools conduct thousands of fundraising activities each year. Fraud examiners must understand the rules governing the entities conducting these activities to properly evaluate and investigate them.
SKIMMING IS THE FRAUD OF CHOICE
Similar to our discussion in the January/February 2013 column, fraud and abuse in all types of student fundraising activities is usually a case of simple asset misappropriation. In the ACFE’s Fraud Tree, cash schemes (part of asset misappropriations), which involve stealing an entity’s funds, fall into three categories: larceny, fraudulent disbursements and skimming. Cash larceny schemes involve the theft of funds recorded in the entity’s accounting records. In fraudulent disbursement schemes, an individual makes a distribution of entity funds for a dishonest purpose. Skimming, the theft of off-book funds, is usually at the heart of student fundraising losses.
Washington state’s administrative code establishes the general rules for fundraising activities that students conduct in public-sector schools. Of course, these rules vary in different jurisdictions. Fraud examiners in other U.S. states and in other countries should research their state and province statutes and administrative codes that apply to these activities for guidance investigating them. The following discussion presents a simple plan I’ve recommended that schools use when developing these guidelines.
A SUGGESTED PLAN FOR SUCCESSFUL FUNDRAISING
- Policies and procedures. All public entities should approve policies and procedures governing fundraising activities in the Associated Student Body (ASB) Program Fund at all schools under their jurisdiction.
- Staff training. Entities should conduct training classes for all staff who plan to manage fundraising activities. Clubs shouldn’t be allowed to hold fundraising events unless faculty advisors have received this training. Faculty advisors should sign a certificate acknowledging that they’ve been trained, read the entity’s policies and procedures and understand required fundraising events rules and consequences for breaking the rules.
- Centralized approval system. Schools should review each club’s fundraising proposals and approve club events. Clubs must then implement plans to schedule approved fundraising events.
- Staff direction and guidance. Schools should provide direction and guidance to faculty advisors prior to approved events to ensure that they properly manage them. The advisors should provide specific prenumbered forms for each event and the methods the clubs will use to document received revenue. Just prior to each event, schools should issue a change fund to the club and require the faculty advisor to sign a receipt acknowledging accountability for both the money and the prenumbered forms for the event.
- Monitoring. After approving a fundraising event, schools should monitor all activities to ensure clubs adhere to policies and procedures. Schools should ensure that faculty advisors document accountability for received revenue, prepare activity reports for events, promptly submit all funds to the ASB Fund treasurer, and obtain receipts and keep copies of all supporting documents on file for the schools’ subsequent review and the external auditors’ audit.
- Accountability. At the conclusion of each fundraising event, a school should analyze the outcome to ensure it’s met financial expectations and that clubs collected the appropriate amount of money, submitted it to the ASB Fund treasurer and deposited it in the bank. Schools should perform a gross profits test (see below) for each fundraising event to determine if the amount of funds received reconciles with the amount of inventory sold, if applicable. Schools also should investigate significant variances.
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