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August 10, 2010



DiNapoli: Local Governments Need to do Better at
Preventing Fraud and Abuse


More than 51 fraud and abuse cases totaling approximately $10 million have been uncovered in local governments and school district across New York since 2007, according to a report released today by New York State Comptroller Thomas P. DiNapoli.

“Local governments and school districts are not immune to fraud and abuse,” DiNapoli said. “Unfortunately, there are too many instances where public funds are being stolen or misused. And my auditors keep finding more.  An audit by my office just identified that the former Sodus town clerk embezzled thousands of dollars. This is not acceptable. Taxpayers can’t afford to pay for fraud and abuse.

“We’re continuing to audit. We’re making every effort to identify and crack down on corruption. But local officials have to do more to eliminate the opportunity for fraud.  Far too many localities aren’t paying close enough attention. New Yorkers deserve to know their tax dollars are protected.”

DiNapoli’s report notes that when fraud is uncovered, it prevents further misuse of taxpayer dollars and provides an opportunity for local governments to recover what has been lost.  Some examples of fraud and abuse identified include:

  • Town of Fairfield, $378,000: The town’s former supervisor and his wife received $378,000 to which they were not entitled to;
  • The Hopevale Union Free School District, $108,650: The district’s former business manager misappropriated $108,650 by issuing himself unauthorized checks, improperly increasing his own salary, and using district funds to pay for his personal tax liability;
  • Ithaca Housing Authority, $206,834: The former executive director misappropriated $45,000 and incurred questionable expenditures of more than $160,000;
  • Bolivar Fire District, $119,429: The district’s treasurer diverted funds for his own personal expenses, deposited district funds into his own bank accounts and overpaid himself; and
  • Town of Ticonderoga, $100,000: The highway superintendent purchased $100,000 of overpriced and unnecessary supplies.  He has admitted to receiving $2,000 in kickbacks for some of these unnecessary purchases and has been charged with a felony.

DiNapoli’s office currently has 16 additional audits nearing completion that have potential fraud findings totaling approximately $400,000.  These audits are expected to be completed by December 2010.

DiNapoli recommends local officials be aware of the following types of “Red Flags for Fraud” – that is, a set of circumstances that is unusual in nature, or varies from the normal activity:
  • Employee Red Flags: Lifestyle or behavioral changes and/or significant personal debt and credit problems;
  • Management Red Flags: Reluctance to provide information to auditors and/or a weak internal control environment;
  • Records and Reports Flags: Incomplete bank reconciliations and/or unjustified cash entries or adjustments;
  • Cash Receipts and Disbursements Flags: Uncontrolled access to blank checks and/or the lack of a cash receipt log;
  • Purchasing Flags: Changes made to vendor files and/or purchases that bypass normal procedures; and
  • Fixed Asset Flags: Lack of periodic physical inventories and/or a lack of physical security over assets.  

DiNapoli’s office offers training on these fraud indicators and the appropriate internal controls for various financial operations.

DiNapoli is encouraging the public to help in this fight.  New Yorkers can report allegations of fraud, corruption and abuse of taxpayer money by:
  • Calling the toll-free fraud hotline at 1-888-672-4555;
  • Filing a complaint online at investigations@osc.state.ny.us; or
  • Mailing a complaint to: Office of the State Comptroller Investigations Unit, 110 State Street, 14th floor, Albany, NY 12236.

In March 2010, DiNapoli proposed legislation to strengthen municipal ethics laws after he identified widespread disparities in how local governments oversee financial disclosure rules and enforce ethics requirements. Comptroller DiNapoli also released a model code of ethics for local governments.

To view this report, click: http://www.osc.state.ny.us/localgov/pubs/preventingfraud.pdf.

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