AgdaPkt 2013-09-23 Closed and Regular

Browse Search

After the allegations of embezzlement, some of the Trustees determined the Manager's skills were inadequate for the position! The Board hired an outside consultant to perform a review of the internal financial controls. Notwithstanding this state of affairs, the Trustees voted to extend the Manager's contract and paid the outside consultant to prepare a Performance Improvement Plan for the Manager to complete in an effort to avoid any further incidents. The District's insurance company has declined to pay on its loss claim given the circumstances surrounding the embezzlement, The insurance company's outside legal counsel stated that the District "misrepresented" its computer controls and should have had systems in place to detect unusual activity. The District disputes this.' The District has retained additional counsel to negotiate this matter. The District indicated in its insurance application that no employee could control a process from the beginning to the end, e.g., request a check, approve a voucher, and sign the check. The District's internal controls required the Manager and a Board officer to approve requests for payment and to sign on checks.' However, the finance department used signature stamps that seemed to by-pass this control. Attorneys for the District argue that "the insurance company was already aware of the lack of controls designed to prevent an embezzlement of this nature".' It should be noted that insurance for these special districts frequently does not cover the costs for attorneys, audits, or other costs associated with embezzlement. Embezzlement may be more prevalent in districts than has been revealed to date. For example, in addition to the District, employee fraud cases in the following County special or school districts have come to light in the last two years alone. Although three of the cases do not relate to special districts, the underlying problems, inadequate controls and oversight, are the same: • Woodside Elementary School District • Portola Valley School District • Mid -Peninsula Water District (It should be noted that LAFCO's executive officer has also recommended that this district be dissolved.) • San Mateo County Community College District The District embezzlement case may be the tip of the iceberg. As one interviewee stated, with so many special districts in this county and counties throughout the Bay area and state, "embezzlements are not unusual," which is no comfort to the taxpayers. However, with sound internal financial controls and good management practices, the risk of embezzlement can be minimized. 5 Board Evaluations of the District Manager. 6 Letter dated April 11, 2012, from Meredith, Weinstein & Numbers, LLP pg 3 (See Appendix Q. 7 Ibid. a Ibid. Z � abed - '311'J