If you can't trust a probation officer, whom can you trust?

Fraud Spotlight: Unusual frauds or fraudsters

We set high expectations of integrity and honesty for law enforcement and court personnel. We trust them to behave at a higher standard. When they violate that trust, the ramifications are greater than usual fraud.

Bill was a probation officer in Tiger County's community corrections department in a rural mid-size city in the Midwest of the U.S. (We've changed all names of people and places.) He was responsible for maintaining contact with those placed on probation or work release by district court judges.

Also, as a courtesy to probationers and other county court districts, Bill supervised individuals who lived in the county but were on probation from another court. Because the community corrections department dealt with less-than-lawful clientele, it was careful to create controls to protect probation officers and other department personnel from harm, including making sure they were never alone in the department with a probationer. Unfortunately, the department failed to institute controls to protect the clientele from the actions of its own officers.

In the past, probation officers regularly visited probationers in their environments or the probationers came to the department offices. This limited the departments' ability to adequately keep track of probationers' activities. Technological advances now allow for 24/7 tracking. Tiger County's community corrections department had monitoring devices that either used the Global Positioning System (GPS) or Radio Frequency (RF) signals to track probationer movements.

A GPS monitor is capable of continuously tracking probationers anyplace in the world. A RF monitoring device is only capable of tracking individuals when it's in close to a base unit, which normally is placed in a probationer's home. The type of device Tiger County community corrections used depended on the nature of the conviction and the amount the probationer could afford to pay for the monitoring. RF monitor devices are cheaper than GPS.

Probationers' payment amounts for the tracking devices — which the director of the community corrections department and the court determined — was on a sliding scale based on a probationer's ability to pay. This procedure allowed for Bill's fraudulent activity.

Pay the probation officer

A probationer would usually come every month to the corrections office to visit with his probation officer during normal operating hours and pay the monitoring charge. The probation officer would complete a client interview (CI) form, which documented the visit and contained the amount owed for monitoring. The probation officer would date the CI form, and he and the probationer would sign it. The probationer would then take the CI form up to the Tiger County treasurer's office, make the payment and return the CI form back to community corrections to be filed. However, the treasurer's office often would be closed, so the probation officer might collect the fees and have them delivered to the treasurer's office the next day. The probationer, if he asked, would receive a signed copy of the CI form as a receipt. But many didn't request receipts. After all, if you can't trust a probation officer, whom can you trust?

Bill realized that few probationers knew the actual amounts they owed for monitoring. He also knew the treasurer's office only recorded the amount that it received and had no record of what probationers owed because the court determined that. So, Bill decided he could skim money from payments received after the treasurer's office closed.

Circumventing controls

Of course, Bill had the problem of probationers using the CI forms as receipts, but he figured out how to circumvent that control. Some probationers were willing to sign blank CI forms, which made it easy for Bill to keep part of the payments and merely fill in the proper amounts later.

Most probationers, however, would only sign after Bill entered the amount they paid on the forms. He'd get their signatures and make copies if they wanted receipts. After a probationer would leave, Bill would use a little correction fluid on the amount, write in a new figure and make another copy to place in the file.

Bill was very good at using correction fluid; he never whited-out any of the lines on a form, which would indicate tampering. He also was very careful to always make sure the CI form contained the proper probationer fee so the court wouldn't question if the probationer had visited and paid. Bill would then place the original form in his "shred box" for routine shredding later so others wouldn't be suspicious about his frequent trips to the shredder.

Bill would then give the money to the director with a sticky note to identify the case number and amount. The director would lock the money in his desk for the night. The next morning either the department's administrative assistant or the director would remit the money to the treasurer's office along with other paperwork.

So, only three people typically handled the money: Bill, the director and the department's administrative assistant. It would be difficult for anyone in the department to track and reconcile paid amounts with required amounts because they varied, plus one entity set them, another entity collected them, and a third remitted them. Also, the court often waived or reduced fees if probationers were unable to pay or if a probationer performed community service. The probationer would note these fee changes in his files, but the director wouldn't ask about each case.

Some county prisoners were allowed out of jail each morning to work and then returned in the evening. The county charged work-release prisoners $20 per day. Sometimes, the probation officers collected these fees also.

Bill's skimming might have continued forever if he hadn't carelessly gotten behind on his paperwork. During a performance evaluation, Bill's supervisor, Evelyn, had set a goal for him to better log, track or document client interviews and payments received. Evelyn audited Bill's client files on his day off and compared the amounts on his CI forms with the treasurer's office receipts. It didn't take long for her to discover discrepancies. Evelyn reported her findings to the director who told Bill the next morning he was on leave, without pay — pending an investigation.

Bill knew he needed to have reasons for some of the discrepancies, so he contacted friends in the department and told them he forgot to remit $300 on one occasion and that he also had $600 stolen from his desk. But Bill's friends had more ethics than he did and immediately reported his stories to the director. Subsequent police interviews revealed that Bill had fabricated his tales.

Evelyn continued comparing the CI forms in Bill's files with the treasurer's receipts. This comparison and subsequent investigation by a police officer, Sally Wise, revealed that more than $16,000 was missing from more than 140 probationer visits. Investigators couldn't find how much more Bill might have been skimmed from work release and bond supervision receipts.

Bill at first denied taking the money and pointed out that the director and the administrative assistant could also be suspects. However, what Bill didn't know is that the treasurer's office kept all the sticky notes that were in Bill's handwriting. The jig was up.

Arrest and court

On Feb. 24, 2011, the District Court of Tiger County issued an arrest warrant for Bill and alleged that he stole currency from the community corrections department. After the police arrested Bill, he was released on bond. A series of court dates began. Through negotiations and plea bargaining, Bill eventually pleaded guilty to 21 counts of misdemeanor theft. The court fined him $265 and ordered him to pay restitution. Ironically, on Oct. 20 of that year, the court placed Bill on probation. The very group he had once worked for now monitored his activities. Bill's probation continued until a motion to terminate it was granted a year later.

Changes at community corrections department

The director, besides being embarrassed that a trusted person on his staff could perpetrate fraudulent activity, was also concerned that what he'd thought to have been adequate controls were unable to prevent skimming of funds. While detective controls built into the system eventually did expose the fraud, everyone realized that tighter preventative controls were needed. Those managing the department were quite disturbed that Bill had found an opportunity for this fraud in a governmental area directly related to law enforcement.

The department quickly made two crucial changes. First, the community corrections department no longer accepts any payments from probationers. Probationers must now come to the treasurer's office in the courthouse to make payments. Second, the department implemented a new fee structure with a set fee for each type of monitoring device: RF is $10 per day, and GPS is $15. In rare cases, the director can waive the fees for indigent probationers —based on probation officers' recommendations — unless the court says otherwise.

Unpaid court-ordered fees will accumulate until the court pays or waives them. The probation officer has to submit pre-numbered accounting memos to the court for fee waiving requests. The probation officer writes on each requesting memo the case number, probationer's name, date and the fee amount he wishes the judge to waive. Fees can also disappear if an offender does community service work at the rate of $5 per hour. The probation officer submits to the court forms, which document the fee reductions.

Don't trust the most trusted

Tiger County learned that even the most trustworthy occupations can provide opportunity for fraudulent behavior. Controls exist to protect both the organization and its personnel. Internal controls are just as necessary for governmental agencies as for-profit companies and perhaps even more so because the funds are used for the public good.

Remember Cressey's Fraud Triangle when designing controls for any organization, and use tools that highlight separation of duties, flow of documents and handling of money when determining internal control procedures.

M. George Durler, Ph.D., Educator Associate, is a professor of accounting at Emporia State University (Kansas).

Jing Xu is a lecturer at Dongbei University of Finance and Economics in China. The Educational office of Liaoning Province in China partially funded Xu's work.

References

Interview with director of community corrections, March 1, 2013.

Warrant for Arrest filed Feb. 24, 2011 in Kansas District Court.

Office of Judicial Administration - Kansas District Court Records searches 2011-CR-000070, 2004-TR-000359, 2004-TR-001168, 2006-TR-000079, 2006-TR-002008, 2011-CR-000070.

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