It seems in 2001-20033, the Topeka School district didn't use very good controls over bank account reconciliations, ignored auditor reports about the weaknesses, and scammers figured how to write 17 fraudulent checks on the School District's checking account for $515,900.
Now they are in court trying to sue the bank for processing the checks, even though both the bank and the school district lacked controls to detect the scams. They also sued their auditors, who actually pointed out lack of accounting controls over check account reconciliation procedures.
In this case, it partly paid to ignore the auditors, since the District got the auditors in 2004 to cough up $163,000 and provide litigation support.
This is a clear example where government administrators were apparently provided reports on accounting control weaknesses which they ignored and it cost them quite a bit.
What I can't figure out is why the general director of fiscal services still has a job there if he ignored the audit findings and controls were so weak the scammers got away with over $500,000 without being noticed OVER A TWO YEAR PERIOD.
vj
PS: My personal War Story: While in college, I worked as a night computer auditor at the City of Los Angeles's downtown computer center. We printed all computer checks, and blank check stock was kept in a "locked" cage, but the key hung on a hook in the supervisor's office. Somone got a check from the bottom of the pile, and wrote a single check for $7-million (in early 1970's) and got it paid to an Swiss bank account. Thus, the IT department had a control list of check sequence numbers, but didn't detect the missing check in sequence until days or weeks later. Apparently, the Accounting office, like Topeka, didn't have controls to catch big transactions, and the crooks got away with it. And, during that time, I had left the city for my college schedule, and read about it in the papers. The next morning, two detectives woke me up at home, and grilled me about the work processes. After they saw where I was living, they figured out I didn't get any of the funds, and left. The City never recovered the funds.
Lesson Learned - You don't skip accounting controls very long without getting taken.
vj
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from
Topeka district, bank Trial date not yet set in fraudulent check case dating to 2001
By Barbara Hollingsworth
The Capital-Journal
Published Monday, December 17, 2007
It isn't the stuff of a "Matlock" episode or even a "Law and Order" nail-biter.
When Topeka Unified School District 501 finally goes to court against US Bank — likely next year — count on hearing about accounting practices. Procedures for balancing the school district checkbook. Check outsourcing. Banking procedures.
Proposed witness and exhibit lists submitted in recent weeks in the school district's case against its former bank offer a peek at what is to come in the district's three-year-old lawsuit. The litigation, filed in 2004, came after the school district was bilked of $515,900 in an international check scam that neither the district nor US Bank noticed despite numerous signs.
The witness lists share several common names, including much of the school district's financial staff and bank employees. Among those who could take the stand:
• Mike Jones, general director of fiscal services, oversaw the department during the course of the scam and continues to lead the department.
• Terry Joyce, a former district accountant, was responsible for balancing the district's check book. He left the district for a job with the city before the scam was uncovered.
• Employees of Berberich Trahan and Co, the district's auditors, had for several years pointed out problems in reconciling bank statements in a timely manner, as well as troubles with technology. The company reached an agreement with the school district in 2004, agreeing to pay the district $163,000 and provide support in the litigation.
• Mike Wilson, associate superintendent, oversaw the district's investigation into the scam.
• Tony Sawyer was superintendent when the scam was discovered.
• Bank employees from several states will be called to testify. Among those testifying will be those familiar with the only fraudulent check to be discovered and not paid.
A Wachovia bank worker who found the check, Anthony Beaufort, explained in a deposition now part of court filings why the check stood out.
"And again, we looked at the payee, and we questioned why would a school district pay an import and export company," Beaufort said in his deposition. "I'm not saying that that's not possible, but that's very rare."
In addition to witnesses will be plenty of exhibits. The defense team has named nearly 140, including district audits and numerous newspaper articles about the scam.
The school district has been allowed to proceed with the litigation on limited grounds. To win, the district must prove that the bank failed to act in "good faith."
The case goes back to 2001 when the first of 17 fraudulent checks in amounts ranging from $9,852 to $64,918 began to be drawn against the district's main checking account. The district and US Bank failed to detect the obviously fraudulent checks, which featured outdated signatures, were written to businesses throughout Asia and used duplicate check numbers well out of sequence with other checks being cashed.
The district didn't discover the scam until the fall of 2003, and US Bank has argued that so much time had lapsed that it isn't liable for the losses. No criminal charges have been filed in connection with the scam.
A trial date hasn't been set.
Barbara Hollingsworth can be reached at (785) 295-1285 or barbara.hollingsworth@cjonline.com.
