Anauthorized maker scheme is a type of check-tampering fraud. In the ACFE’s Fraud Tree, the crime is a subset of fraudulent disbursements, which is a subset of cash schemes. In this complex computer fraud, Frank, the deputy treasurer-controller of a Washington state public utility district (PUD), compromised its internal control system by issuing unauthorized checks to himself for $236,925.23 during a one-year period. Obviously, this act violated the trust the organization placed in him to protect its treasury funds from abuse and loss.
Part 1 of this column in the November/December issue discussed the perpetrators, the organization, and the staff’s initial discovery of the fraud. We now continue the story by discussing the investigation, the three major components of the authorized maker scheme, the outcome of the investigation, lessons learned and recommendations to prevent future authorized maker schemes. Here’s what happened.
After the PUD’s staff detected the scheme, Sam, Frank’s supervisor, immediately called the state auditor’s office to report the event as required by law. This agency is the external audit firm responsible for the audits of all public entities in the state of Washington. Sam talked with Janice, the auditor who had performed the PUD’s last annual audit.
“Janice, we have a very serious situation on our hands,” Sam said. “The deputy treasurer-controller issued at least one unauthorized check to himself for $7,148.53. When confronted about the matter, he made restitution and resigned. But as he departed the office, he apologized and said that we would find more irregular transactions. I need your help to investigate this matter further. I’ve already briefed the PUD’s executive staff. They want to know if you can start work immediately.”
“Yes, I can,” Janice replied. “I’ll clear my schedule and be right over. In the meantime, ask the staff to secure all of the accounting records related to this unauthorized transaction. I’ll also need some work space near the finance department. Can you make all of these arrangements for me this morning?”
“Everything has already been taken care of by my staff. I’ll see you shortly,” Sam said.
Janice contacted me because I managed the agency’s statewide fraud program. We went over the known facts of the case. I realized the gravity of the situation, so I told Janice, “This is urgent. It could potentially result in a significant loss. In fact, it’s so serious that I’m going to notify the state auditor today and then join you at the PUD tomorrow morning.”