The chief was a thief

What tears at the fabric of a small town? Theft, betrayal and a loss of confidence in the very institutions that make the town a great place to live. This is the story of how a small gap became a gaping hole in oversight, management and internal controls, which resulted in a theft of more than $250,000.

Farmington, New Hampshire, is a quiet community nestled between the Lakes Region and the seacoast. It's a small, blue-collar New England town with a population of nearly 6,800. The average household income is $51,382. Its claim to fame is being the hometown of President Ulysses S. Grant's vice president, Henry Wilson.

Like many small towns in America, Farmington relies heavily on volunteer fire fighters and emergency medical technicians (EMTs). But a quirk in the town's governance — and apparent lack of sufficient oversight by the public and town leaders — enabled the fire chief to commit a long-running embezzlement scheme.

The scheme, essentially a combination of corrupt diversion of funds and a fraudulent expense reimbursement scheme, cost Farmington more than $270,000, caused turmoil within the town and the fire department ranks, and was a huge public embarrassment. In the end, the chief went to prison, and the town is still reeling from his betrayal of trust.

This case study highlights the importance of public-private oversight, nonprofit internal controls and governance, and how to properly monitor financial affairs in an organization. The sad part is that both paid and volunteer fire departments across the nation seem to encounter fraud frequently. A Google news search for "fire department theft" turns up 5.3 million hits. As fraud examiners, we can learn a lot from this case.