State audits, system controls help prevent Minnesota school frauds

Taxpayers entrust their money to the public schools system and school districts take that responsibility very seriously.

But the system isn't perfect. So districts are constantly on alert.

Last week, a former La Crescent school employee was sentenced to a year in jail for embezzling money from the district.

Minnesota school districts have their finances audited each year.

CPA Earl Engelson said it's just a sample of the finances. If something doesn't seem right, accountants investigate further.

"It could have been an employee reimbursement that was paid out and it wasn't really a true reimbursement. But if you don't happen to pull that particular employee invoice or time record, you won't catch it," said Engelson, a CPA for Engelson & Associates, Ltd.

This means not everything is detected.

"You don't have the person who does the reconciling of the banks also in charge of the general ledger and also writing the checks. You're just inviting a fraud," he said. "You need other people involved to oversee."

All Minnesota school districts follow a set of controls outlines by the state. Yearly audits also check that those safeguards are in place.

When a public employee or public officer discovers evidence of theft, embezzlement, unlawful use of public funds or property, they have to immediately report to law enforcement and write to the state auditor, according to the Minnesota Office of the State Auditor.

The Office says there were four reported cases in 2007; 17 reported cases in 2012.

Minnesota has 399 independent school districts.

Attorney Cheryl Gill said as the economy goes down, fraud goes up.

"Public entities especially have to put in systems and controls that as far as possible prevent this from going on. There's no fool-proof way to do this," Gill said. "A smart embezzler will always get around the system. Always."

Gill, a partner with Johns, Flaherty & Collins, said when the books balance, theft is not easy to detect.

"You have to go behind the transaction to find the fraud," she said. "Any good embezzler or any good thief is always going to make detection difficult."

For a superintendent who dealt with a theft problem, Ron Wilke said eventually system controls will find it.

"We do have those controls in place to make sure it doesn't happen again," said Wilke, superintendent of the La Crescent-Hokah School District. "It's that whole piece of verify. Verify to trust."