Local government fraud: the Roslyn School District case

Abstract

PurposeThe purpose of this paper is to provide an in‐depth analysis of a major fraud case in a local government setting, specifically a public school district, as a guide to managers and overseers of such organizations and as an instructional resource. Fraud cases outside the corporate arena have not been well represented in the literature.Design/methodology/approachThe paper describes the multi‐faceted fraud that occurred, identifies the control, oversight and auditing deficiencies that permitted it to happen, and suggests how adherence to good practices contributes to fraud prevention. What happened, why it happened, and how it might have been prevented are discussed. An extensive state audit provides richness of detail for this case study.FindingsThe absence of, or non‐adherence to, internal controls, failures of oversight by the supervisory board, collusion among top executives, and substandard auditing all contributed to a multi‐million dollar public fraud extending over several years. The case led to new requirements for the financial management of school districts.Practical implicationsThe case provides guidance to management, board members, auditors, and regulators as to how fraud can thrive when control and oversight deficiencies exist, and demonstrates how adherence to good practices can reduce the occurrence of fraud in the local government environment.Originality/valueThis paper provides a broader exposure to a major, multi‐faceted fraud case in a non‐corporate environment.