By: Tonya Mead, PhD, MBA, M.Ed, CFE, CHFI, PI
CPAs must beware of school fraud. Why? Turning a blind eye to corporate jets, luxurious homes, vast real estate and $1 million in cash can mean a loss of certification, the requirement to pay restitution and a jail sentence.
This is exactly what happened to former CPA (emphasis on former) Neal Prence. He is soon to be sentenced to federal prison “for his role in covering it all up after he pleaded guilty to one count of of tax conspiracy.” (para 6). Mind you, Prence was not auditing the books of an aggressive small business owner with hungry eyes ready to pounce on any and all deals. He was minding the store of a public charter school operation.
The back story
U.S. Attorney David Hickton charged Prence based upon an elaborate scheme of grant fraud concocted by Dr. Nick Trombetta, founder of the Pennsylvania Cyber Charter School. In the end, the the former CPA was called “a willing, long-term and eager participant in a criminal enterprise” and “an absolutely essential participant in an illegal scheme to divert $8 million in public money into the pocket of Nick Trombetta.” (para 9).
Fraud detection is addressed in AU Sections 316 and 240. Even so, practitioners in the the auditing profession argue that fraud detection is not within its purview. Attorney Greene disagrees. Regardless of where you stand as the reader of this blog, victim organizations, once fraud is uncovered “often assert a malpractice claim against the CPA firm.” (para 1, line 15).
Red Flags for Fraud
Generally, some of the red flags for fraud are:
- Rounded dollar amounts
- Duplicate transactions
- Multiple vendors with same and/or similar addresses
- Multiple employees with same and/or similar addresses
- Weekend and after hours journal entry posts
- Shell companies (multiple transactions within arms length)
But the experienced CPA and compliance officer knows this already. If you are interested in examining the Red Flags for Fraud, specifically in the education sector, click here for my free resource. The resource lists fraud acts by department and identifies the documents and data most likely to be manipulated in an educational setting.
About Tonya Mead
Tonya J. Mead, PhD, MBA, M.Ed, CHFI, CFE, PI, is the founder of Shared Knowledge LLC a private security and detective agency. Dr. Mead, formerly a certified K-12 Administrator and School Psychologist, is author of Fraud in Education: Beyond the Wrong Answer and president of Shared Knowledge, LLC http://ishareknowledge.com If you like her work, please support her at Patreon.