Amplify LIVE: Indiana SBOA Experts Share Insights on Fraud Investigations

At our Amplify LIVE annual conference, experts from the Indiana State Board of Accounts, Ed Wheele, Director of Special Investigations, and Scotty Stockton, Director of Fraud Examinations, shared invaluable perspectives on fraud investigations in Indiana. Their session delved deep into the processes, challenges, and real-life cases of fraud within local government entities, offering lessons about the integrity of public funds. Below are key takeaways from their insightful discussion.

Understanding Types of Fraud: Nonfeasance, Misfeasance, and Malfeasance

Ed introduced three critical concepts that frame fraud cases in local government:

• Nonfeasance. The failure to perform a duty. For example, if a city’s phone bill goes unpaid for months, resulting in unnecessary charges, it's classified as nonfeasance. While it’s typically not pursued unless tied to something more serious, it shows the importance of diligence in public office.
• Misfeasance. Performing an action incorrectly. A typical example is a town official purchasing a necessary item, like paint, without keeping proper documentation. Although it's an allowable expense, the lack of records can lead to scrutiny.
• Malfeasance. The most serious category, representing outright fraud. An extreme example shared was of a mayor misusing public funds for personal trips.

These distinctions help public officials understand the varying degrees of wrongdoing, underscoring the importance of accountability at all levels.

The Importance of Internal Controls

While internal controls are legally required by the State Board of Accounts, Ed emphasized that these controls are only as effective as the employees who follow them. Strong controls can prevent fraud, but lax implementation can lead to significant vulnerabilities. Drawing an analogy, he likened it to having a great diet but not following it: it simply doesn’t work. Internal controls should be treated as non-negotiable, with clear oversight to ensure compliance.

How Fraud is Detected

Ed and his team receive complaints through various channels:

• Citizen Complaints. Local politics can be a hotbed for accusations, but Scotty noted that while many complaints stem from gossip, some reveal serious issues.
• Audit Teams. These teams often uncover deeper, ongoing patterns of fraud, which are then investigated further.
• Law Enforcement. In some cases, law enforcement agencies such as the FBI or State Police may discover fraud independently, collaborating with the special investigation team to bring perpetrators to justice.
  
  

Real-Life Fraud Cases: Learning from Mistakes

Ed and Scotty shared real-world cases that highlighted the consequences of poor oversight and blatant criminal behavior. For instance:

• A Township Trustee was sentenced for spending public funds on personal expenditures, including spa days and self-help training.
• A school employee embezzled nearly a million dollars by manipulating vendor payments over five years, using the funds for gambling.

These examples underscore the severity of fraud and the long-lasting financial and reputational damage it can cause. The takeaway? Vigilance and transparency are key to preventing such scenarios.

Fraud Prevention in the Digital Age

One growing threat is email phishing scams. Fraudsters hack into email systems, posing as vendors and requesting changes in payment details. These scams have cost Indiana units up to $1.2 million. Scotty and Ed stressed the importance of verifying any requests for payment changes, preferably with a phone call or in-person confirmation. Simple measures like these can prevent devastating financial losses.

The "Why" Behind Fraud: Human Motivations

Scotty closed the session by addressing why otherwise good people commit fraud. The reasons range from personal financial stress to a feeling of entitlement or control over money. Red flags include employees who insist on being the sole handler of finances, lock others out of the process, or refuse to train others.

The key point: fraud happens because it can. When internal controls are weak and there is little oversight, the temptation for dishonesty grows.

Final Thoughts: Protecting Public Funds

The lessons shared at Amplify LIVE serve as a reminder of the critical importance of safeguarding public funds. Fraud prevention is not just about legal compliance; it’s about building a culture of trust and responsibility. By implementing strong internal controls, educating employees, and staying vigilant, Indiana’s local governments can protect taxpayer dollars and maintain public confidence.

For more information on fraud investigations or to learn how your organization can strengthen its internal controls, you can visit the Indiana State Board of Accounts website.