As the bailout goose lays her golden eggs, who is guarding the henhouse?
"A billion here and a billion there and pretty soon you're talking about real money." That's a great line, attributed to the late Senator Everett Dirksen. But with the bailout of 2008 signed by President Bush and now the trillion dollar-plus rescue package that Democrats in Congress and Barack Obama are proposing, those billions are starting to look like chump change. It doesn't take a scholar to know... that's a lot of money. As a result, many financial professionals are bracing themselves for what history tells them will be the other fallout. That is, the potential for fraud that so often seems joined-at-the-hip with the outpouring of funds without sufficient accountability.
No wonder auditors and forensic accountants everywhere are raising their eyebrows, wondering who, if anyone, is guarding the henhouse. Months before talk of the bailouts began, tremors in the economy shook the public's confidence, completing the "fraud triangle" of need, opportunity, and rationalization.
Fraud specialists know that the worse the economy grows, the more vulnerable their clients are to falling victim to fraudulent behavior. That also explains why, as other professions are cutting back on staff, people trained in fraud detection and prevention have plenty of work, including the FBI which says on its Web site it is looking for 2,100 new hires.
One Los Angeles firm sees the writing on the walls, and is prepared. California may be even more vulnerable to fraud than many states, says Don Mullinax of Forensic/Strategic Solutions , since they are slated to receive billions in rescue funds... $4.4 billion just for the California school districts. The biggest challenge facing school districts as well as the rest of the state, says Mullinax, is that there are few, if any plans and procedures in place to guide the spending and ensure against waste, fraud, and abuse... the "three headed beast of fraud."
Mullinax is particularly well qualified to lead the charge against fraud in California, and at school districts, after spending 30 years fighting inappropriate spending at the local, state, and federal level, including over six years as the Inspector General of the Los Angeles Unified School District. "The tendency with government agencies is to just cut across the board, such as a 10 percent cut from every department," he says, rather than examining each area of cost and eliminating the fat. That keeps politics out of it, says Mullinax, but it's the wrong way to go about it. That policy doesn't take into consideration the staffing levels needed to ensure strong internal controls. Across the board cuts could leave an organization more vulnerable to fraud and strategically unable to survive for the long term.
With the help of the team of professionals at Forensic/Strategic Solutions, he hopes to be able to provide some guidance for establishing strong internal controls and examining the return on investment for each area of expense rather than just random cutting. His vast experience with the LAUSD tells him that this is a case of fraud waiting to happen. "Before the talk of the bailout began, the LAUSD had plans to cut 2,500 teaching
positions," says Mullinax.
"Now they view the bailout funds as a windfall, and instead of streamlining, they've shelved the plans to cut jobs." Based on his experience he predicts that once the funds are doled out, many entities will go on spending sprees, buying everything on their wish lists instead of using the money in ways that will leave them stronger in the longer term.
"Our firm's strategic focus is to have the best people and brightest people available to do the job," he says. "What we see coming is a major injection of cash, and too little accountability." Forensic/Strategic Solutions is in a unique position to provide guidance, assist in setting up controls, and ... they hope... to keep the cancer of waste, fraud, and abuse from spreading.
In terms of the general slowdown of the economy, there is at least one good outcome. Kelly Todd of the Birmingham, Alabama office of Forensic/Strategic Solutions says that as state budgets are strained, state officials tend to enhance their audits of entitlement programs that are often wasteful, and eliminate unnecessary spending in those areas. She's seen that happen in Alabama and views it as healthy for the future of the general economy.
As the bad economic news continues to roll in and the bailout money flows freely, Forensic/Strategic Solutions is ready for the onslaught they see coming. "We have a very well defined strategic focus that we don't see in a lot of firms," says Mullinax. "They try to be all things to all people. It takes a special kind of person to do what we do, to investigate and solve the puzzle." With decades of experience in "chasing the footprints of the beast," it's clear... he knows what he's talking about.