How schools can reduce financial risk

A simple solution to curtail fraud and damage to a school district's reputation
By: | November 15, 2016

School districts across the country face persistent financial challenges. Even as they try to allocate more resources for the classroom, state and local financial struggles limit available funds and increase the pressure on districts to get more done with less.

Still, at a time when financial responsibility should be paramount, misconduct remains far too common.

As education vendors seek out Title I funds, E-Rate rebates and other grant funds for district projects, the pressure increases. Unfortunately, many districts lack administrative staff capable of vetting vendors and scrutinizing invoices—increasing the risk of wasting resources on unscrupulous vendors.

An internal watchdog

Most districts don’t have in place the necessary and fundamental oversight of their financial and procurement operations to protect their reputations and reduce the risk that negligence will end up on the front page of the local newspaper. That’s why I suggest having an internal watchdog, like an inspector general or internal auditor.

An inspector general investigates allegations of waste, fraud, financial mismanagement and employee misconduct. An internal auditor conducts financial and programmatic audits that uncover the risk of fraud or highlight waste and inefficiency. Some inspectors general perform investigative and audit functions for their agency.

An internal watchdog can help a district prevent fraud and, as a result, save money and time. Legal bills, compliance with law enforcement investigations and civil recovery actions can drain resources and distract administrators and staff from their jobs.

Make fraud a risk not worth taking

A district can easily fall victim to employee theft or a vendor’s fraudulent billing when perpetrators think they will succeed. If an inspector general is on the scene, a potential fraudster is more likely to determine it’s too risky.

Further, the internal watchdog can help the district establish systems to identify high-risk areas, ensure effective controls are implemented, and respond if controls are circumvented. This sets a tone that misconduct will not be tolerated and will be punished.

An inspector general or internal auditor can also work with the district to educate employees and vendors about prohibited conduct and discipline for violations. Employees and vendors should know they can report misconduct without fear of retribution. Such whistleblower policies further reinforce the district’s goals and objectives of effective and efficient operations.

Phoning in fraud

Additionally, districts should consider installing a fraud hotline, which allows employees and other stakeholders to report misconduct anonymously. And the district’s code of conduct should incorporate a provision allowing the district to punish employees who have knowledge of misconduct but fail to report it to a supervisor or the watchdog.

An inspector general or internal auditor can manage the fraud hotline and respond to credible allegations of misconduct independent of district leaders. This ensures confidentiality when necessary and allows administrators to focus on providing a quality education while the watchdog contends with allegations of misconduct. The district needs to respond only at the conclusion of the watchdog’s efforts.

Protect financial resources

Most school districts do an exemplary job educating our children. Unfortunately, we often remember districts more for the financial shenanigans that embroil superintendents, board leaders or staff members.

Having an internal watchdog on staff, or available as a contractor, takes the pressure of responding to allegations of employee and vendor misconduct off of district administration. Further, the inspector general sets the tone at the top of the organization that unethical conduct will not be tolerated and serves to deter those contemplating fraud.

With an internal watchdog in place, school districts can feel more confident their funds are secure and their reputation will remain strong.

James Sullivan is a director in the dispute advisory practice at Sikich LLP, and is the former inspector general for the Chicago Board of Education.