Public service entities depend on public money to operate and survive, providing necessary services to their communities. Therefore, stealing those monies for personal use becomes a breach of public trust, as we have seen in numerous cases nationwide.
Why do we steal this money? It is easy. There is a need and opportunity. It is victim-free, and they can rationalize the theft. The term of art is the fraud quadrangle.
First, the person has a financial need that causes them to take the money. Second, they have an opportunity to take the money. Third, they can rationalize stealing from the public. Fourth, it may never be discovered due to the audacity of the crime and the trust placed in those who manage your money.
These frauds are not isolated incidents, but rather a widespread issue that affects not only the fire service but also other governmental agencies. Consider the case of Rita Crundwell, the comptroller for Dixon, Illinois. Over a span of 22 years, she embezzled a staggering $53.7 million from the city. This money was used to fund her American Quarter Horse breeding operation and an extravagant lifestyle. She was eventually caught, pleaded guilty to wire fraud and money laundering, and was sentenced to nineteen and a half years in prison.[1]
“They’ll do it once or twice because of a personal problem, and they don’t get caught,” explains the attorney. “And then they usually do it until they get caught.”
In another instance, a former New York University administrator was found guilty of a $ 3.5 million fraud. This included spending $80,000 of public funds on a swimming pool at her Connecticut home. The former administrator, Cindy Tappe, pleaded guilty to second-degree grand larceny and will serve five years’ probation. She is also required to pay $663,209 in restitution, the full amount she diverted for personal expenses.
Unbelievably, the district attorney noted that there is actual harm to the community. Her “fraudulent actions not only threatened to affect the quality of education for students with disabilities and multilingual students but denied our city’s minority- and women-owned business enterprises a chance to compete for funding fairly. [2]
In another case, a pair of former City of Milwaukee Department of Public Works employees pleaded guilty to stealing from sales of city equipment. The pair gambled excessively at the Potawatomi Casino with embezzled money, and the pair pleaded guilty to conspiracy to commit theft from a federally funded program and theft from a federally funded program. Each pair faces up to 15 years in prison and must pay $357,511 in restitution.
Records show that from June 2022 to September 2022, the pair sold city equipment and vehicles to their friends and family members for “far less than fair market value.” They collected cash for the sales and converted only part of that cash into money orders. Then, the pair deposited the money orders with the city and kept the excess cash. Court records show they created fake bills of sale to deposit the transactions with the city. Records show that the pair embezzled well over $100,000 together.[3]
Fire Service
In the fire service, opportunity, motivation, greed, and the lack of oversight lead to the opportunity to steal from the public coffers. For example, the treasurer of a volunteer fire department in Pennsylvania is facing criminal charges for stealing over $90,000 from the department. Following a lengthy investigation by the Pennsylvania State Police, she has been charged with forgery and theft by unlawful taking. [4]
In New York, an audit report released by the New York State Comptroller’s Office confirmed that the treasurer of the Hannibal Fire Company stole at least $850,000 from the company. The treasurer committed suicide last year as investigators were accessing the fire company’s financial records that were stored at his home. [5]
In Texas, the former fire chief of Denton County Emergency Services District 1 has pled guilty to thirteen counts of stealing. The Chief was accused of stealing over $490,000 from the Argyle Volunteer Fire Department. A federal grand jury indicted him. The theft became known directly from a wrongful termination lawsuit brought by a firefighter in 2021. That firefighter claims he was terminated in 2020 for “asking too many questions” about a 401(k) plan the Chief managed for employees. [6]
Even in my state of Washington, a fraud investigation report from the Washington State Auditor’s office revealed that $200,000 in public funds were misappropriated by a Mason County fire chief and secretary. The state auditor recommended that the district file a police report about the loss of public funds from January 1, 2017, through July 31, 2022. No police report had been filed due to turmoil in management and the commissioner. Still, the findings led to ultimate resignations, terminations, and new leadership. The investigation, which began in September 2021, determined that misappropriations totaling $68,672 involving payroll, credit card, and other disbursements occurred between October 2017 and July 2022.[7] Look at the video below of the district fraud and the convoluted tale of corrupt local government from a local vlogger.
Penalties
All states and the federal government have laws outlining the behavior and the penalties.
For example, in South Carolina – Title 16 – Crimes and Offenses, Chapter 13, Forgery, Larceny, Embezzlement, False Pretenses and Cheats – Article 1 outlines those offenses and penalties.[8]
The feds under 18 U.S. Code § 641:
Public money, property or records – Whoever embezzles, steals, purloins, or knowingly converts to his use or the use of another, or without authority, sells, conveys or disposes of any record, voucher, money, or thing of value of the United States or any department or agency thereof, or any property made or being made under contract for the United States or any department or agency thereof; or Whoever receives, conceals, or retains the same with intent to convert it to his use or gain, knowing it to have been embezzled, stolen, purloined or converted shall be fined under this title or imprisoned not more than ten years, or both; but if the value of such property in the aggregate, combining amounts from all the counts for which the defendant is convicted in a single case, does not exceed the sum of $1,000, he shall be fined under this title or imprisoned not more than one year, or both…
…and wait there is more…
Look at your state laws related to Embezzlement and Fraud of Public Funds. The charges and penalties are eye-opening but not much of a deterrent, as it happens everywhere and at all levels of government.
Prevention
The financial crime of embezzlement is a specific form of theft. A distinction between embezzlement and other instances of theft is that the embezzler acquired possession of the property due to their position, role, or relationship. While they possess the property, the embezzler uses or takes the property to their advantage. For example, a Chief instructs an assistant to use the company credit card to purchase office furniture; the assistant buys the furniture and purchases electronics to keep for their collection.
Although employee theft is prevalent, employees are not the only ones who commit the crime. Embezzlers can be trustees, friends, and relatives, or public officials. As keepers of the public trust, government officials have an even greater fiduciary duty because they manage public funds. Many states have stricter laws for embezzlement cases where a public official is the perpetrator. [9]
Some prevention advice: [10] [11] [12]
Know your employees. Be alert to key indicators of potential theft, such as:
- Sudden, apparent devotion to work and working late.
- Lifestyles well above salary levels.
- Strong objections to procedural changes related to financial, inventory, or supply matters.
- Drugs and alcohol abuse.
- Moonlighting with materials available at the business.
- Evidence of compulsive gambling, persistent borrowing, or bad check writing.
Establish a Culture of Transparency
Establish a culture of transparency and responsibility. A board of directors has a fiduciary duty to the organization and a commitment to manage its finances diligently. Therefore, directors should actively monitor the organization’s books and records. Financial records should be kept current so they can be viewed anytime. As noted here, alarms should go off if officers or employees will not share the financial records or supporting documentation, refuse to answer questions about financial transactions, or require a significant period of advance notice before allowing the financial records to be viewed.
Create and Follow Internal Financial Policies
Organizations should establish written internal financial policies and practice them consistently. Everyone who manages your money must know these rules, as should all organization members. Embezzlement may include not only the theft of money but also the theft of goods or services. To prevent this theft, keep up-to-date inventory records; receipts should be sufficiently detailed to identify the item, and receipts about sales or donations must include the member managing this transaction. If a member’s money is passed on to another, it should be counted, and both persons should have a signed record of the amount that changed hands.
Have Multiple People Involved in Finances
Two-party checks are necessary, and organizations should adopt and maintain a system of checks and balances. As noted here, at the very least, someone else writing checks and making deposits should regularly receive, review, and reconcile the bank statements and promptly ask questions if any irregularities appear. In addition, if feasible, requiring two signatures for all checks is a valuable standard practice (provided, of course, that checks are never pre-signed). When using electronic or computerized recordkeeping systems, each user should have a unique username and password, and the password should be known only to the user.
Independently Verify All Invoices, Vendors, Reimbursements, and Payees
Phone calls and online research can discover fictional companies and ghost employees. At the same time, imaginary transactions buried in “miscellaneous” line items can be detected by insisting on itemization and backup. As the URL below notes, every board member should receive a detailed general ledger report monthly; this should identify every transaction posted to each account during the month. If a check is made payable to one name but endorsed in another, the former might not exist. Never permit checks made payable to “cash.”
Again, as noted in the subsequent link, insist on competitive bidding, references, written change orders, and documentation of cost overruns for every significant repair or capital project. For more details, click here.
Search for any atypical, unexplained transaction on a bank statement that is from or to an unknown account or payee or omitted from an officer’s or manager’s report.
Know Who Can Access Your Data…and When
Security means considering where your data lives and what security protections are in place. Cloud technology allows outsourced bookkeepers to access your data without storing it on their desktops. If you outsource bookkeeping, ask how the provider stores your records and controls access to your data. If you maintain paper or hard copy business records, consider storing these records under lock and key; only key holders should be permitted to access the records.
Take the Appropriate Steps to Report Theft and Recover Funds
Despite having proper safeguards, embezzlement may still occur. In such cases, the board should take appropriate steps to recover diverted funds and report the theft to authorities. Adequate safeguards should assist an organization in identifying perpetrators and relevant periods. It may be necessary, or at least helpful, to retain the services of a forensic accountant to determine the amount of the total loss and the period for the embezzlement. This audit would assist the board and law enforcement.
Failing to act for missing funds or property may breach the directors’ fiduciary obligation to protect and preserve an organization’s assets.
In Washington, the State Auditor’s Office must audit public agencies once every three years.
There are many more ways to secure your funds as you already practice. These are only a few suggestions. As noted in this blog post, always be on guard for signs of heightened risk or opportunities for embezzlement. These may include people who have occupied the same position for many years, refuse to delegate or share responsibilities, refuse to give detailed answers or original documents, and are experiencing drug, alcohol, or personal financial problems.
To respond to these risks, consider establishing term limits, rotating duties, and directly involving multiple people in every financial transaction.
Finally
Embezzlement and theft from your department are frequent and easy crimes to perpetuate, and they are equally easy to prevent and resolve. Organization members have a moral, fiduciary, and legal obligation to stop these threats.
Who can overlook a $5.7 million theft from an organization over 13 years without the red flags of embezzlement? [13]
Your public obligations are broad and all-encompassing. Preventing theft and embezzlement is only one of those obligations, so do not forget your moral, fiduciary, and legal obligations to your department and the public. Let us be safe out there.
[1] https://www.wifr.com/2023/03/01/why-do-government-public-officials-steal-so-often/
[2] https://www.nytimes.com/2024/02/27/nyregion/cindy-tappe-guilty-theft.html
[3] https://www.wisn.com/article/milwaukee-employees-plead-guilty-stealing-city-money-gambling/60245239
[4] https://www.firelawblog.com/2024/04/30/pink-collar-theft-in-pennsylvania-vfd/
[5] https://www.firelawblog.com/2023/07/30/treasurer-stole-at-least-850k-from-ny-volunteer-fire-company/
[6] https://www.firelawblog.com/2023/05/25/texas-chief-pleads-guilty-to-stealing-department-funds/
[7] https://www.kiro7.com/news/local/state-auditor-mason-county-fire-district-12-misuses-nearly-200k-public-funds/
[8] https://www.scstatehouse.gov/code/t16c013.php
[9] https://www.findlaw.com/state/washington-law/washington-embezzlement-laws.html#:~:text=Embezzlers%20are%20punished%20based%20on,a%20fine%20up%20to%20%2410%2C000
[10] https://www.michigan.gov/consumerprotection/protect-yourself/consumer-alerts/business/embezzlement-prevention
[11] https://www.score.org/resource/article/10-ways-prevent-employee-theft-and-fraud
[12] https://fasny.com/magazine_articles/seven-tips-avoiding-theft-firehouse/
[13] https://www.justice.gov/usao-sdny/pr/treasurer-mahopac-volunteer-fire-department-charged-embezzling-more-57-million-and
JOHN K. MURPHY, JD, MS. PA-C, EFO, deputy chief (ret.), has been a member of the career fire service since 1974, beginning his career as a firefighter and paramedic and retiring in 2007 as a deputy chief and chief training officer. He is a licensed attorney in Washington State since 2002 and a licensed physician’s assistant since 1977. Murphy consults with fire departments and public and private entities on operational risk management, response litigation, employment policy and practices liability, personal management, labor contracts, internal investigations and discipline, and personal injury litigation. He serves as an expert witness involving fire department litigation and has been involved in numerous cases across the country. He is a legal and management educator, frequent legal contributor to Fire Engineering, participant in Fire Service Court Radio, a blogger and a national speaker on fire service legal issues. He is a distance learning instructor with the University of Florida Fire and Emergency Services undergraduate program.
This commentary reflects the views of the author and not necessarily the views of Fire Engineering. It has not undergone the standard peer-review process, and should not be construed as legal advice or counsel.
