There’s a trust that builds with longtime employees—one that seems above suspicion of wrongdoing. But not double-checking the books can have severe consequences. Embezzlement and other forms of financial fraud cause unrest in your school’s community, stress your financial plan, and can even force your institution into bankruptcy. The resulting scandals can drive away potential “investors” in your school, i.e., prospective families and donors, causing serious cash flow problems.
Take what happened to Pegasus School in Huntington Beach, California. Families paid $18,700 in tuition while Ricardo Nieva, the school’s long time Business Manager, wrote himself 256 unauthorized checks over seven years. The embezzled funds totaled $2,093,667.84, as Eric Hartley for the Orange County Register reports, which Nieva spent on expensive vacations, mortgage payments, college expenses, and baseball tickets among other things.
School Head Jason Lopez, who started in July 2014, said that, after new members on the Board and the Finance Committee noticed some numbers that “didn’t look right,” they went to the FBI with the information and the case developed from there. He went on to say:
There are some folks who’ve worked with the guy for nearly 20 years and never would have suspected a thing. You have a trusted colleague who you believe has your best interests and the school’s best interests and the children’s best interests, and come to find out it was more than just an error. … The truth is, when you have someone who’s been around 18 years, you just think, “Oh, of course we can trust him.”
And Nieva’s not the only corrupt administrator who's been caught with his hand in the till.
- Dana Sells pleaded not guilty to allegations of forgery, deceptive practices, and theft from Trinity Lutheran School in Lansing, Illinois, where he formerly served as the school’s Athletic Director and PTL President.
- An internal probe at Southlake Christian Academy in Huntersville, North Carolina, prompted the resignation of the school’s Chief Financial Officer and the pastor who founded the school after funds were discovered missing.
- The former Principal of St. Francis of Assisi School in Amesbury, Massachusetts, pleaded guilty to embezzling over $150,000 from school funds—while the diocese had been holding meetings with school community members to balance the budget and alleviate financial concerns.
Here are some “warning signs” that it may be time to examine the figures more closely. Of course, these can all be indicative of dedicated employees and perfectly innocent, but it doesn’t hurt to keep an eye open for discrepancies.
- Petty cash disappears too quickly.
- Expense reports seem too extravagant (travel, office supplies, etc.).
- Vacation time is frequently refused, as he or she may be “afraid that theft will be detected by a replacement.”
- An employee frequently demonstrates a level of personal spending—vacations, new cars, expensive clothing—that could not be supported by his/her level of personal income from the school.
If you were to take one lesson from these unfortunate episodes, then remember to double-check the books and reports. Innocent mistakes are caught before they cause greater problems that way—just imagine how many revisions this article went through before you read it on your screen!—and more sinister actions can be nipped in the bud before they siphon off two million dollars from your school’s valuable resources.
Additional ISM resources:
ISM Monthly Update for Risk Managers Vol. 1 No. 7 Crisis Leadership Lessons From "Blue Bloods" (Editorial)
ISM Monthly Update for Business Officers Vol. 8 No. 5 The Seven Steps of Claims Filing
ISM Monthly Update for School Heads Vol. 11 No. 8 What Do You Know About Financial Reporting?
ISM Monthly Update for Trustees Vol. 10 No. 5 Develop a Financial Contingency Plan
Additional ISM resources for Gold Consortium members:
I&P Vol. 32 No. 13 Your Strategic Financial Policy Document: A Sample
