Special investigation Santa Cruz County school superintendent theft of public monies

              Special Investigation
Santa Cruz County
School
Superintendent
Theft of Public Monies
Special Investigative Unit
Debra K. Davenport
Auditor General
NOVEMBER • 2005
A REPORT
TO THE
ARIZONA LEGISLATURE
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators
and five representatives. Her mission is to provide independent and impartial information and specific recommendations to
improve the operations of state and local government entities. To this end, she provides financial audits and accounting services
to the State and political subdivisions, investigates possible misuse of public monies, and conducts performance audits of
school districts, state agencies, and the programs they administer.
The Joint Legislative Audit Committee
Senator Robert Blendu, Chair Representative Laura Knaperek, Vice Chair
Senator Carolyn Allen Representative Tom Boone
Senator Gabrielle Giffords Representative Ted Downing
Senator John Huppenthal Representative Pete Rios
Senator Harry Mitchell Representative Steve Yarbrough
Senator Ken Bennett (ex-officio) Representative Jim Weiers (ex-officio)
Investigative Staff
George Graham, Manager
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.azauditor.gov
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
WILLIAM THOMSON
DEPUTY AUDITOR GENERAL
November 25, 2005
Members of the Arizona Legislature
Santa Cruz County Board of Supervisors
The Honorable Terry Goddard
Attorney General
The Office of the Auditor General has conducted a special investigation of the Santa Cruz
County School Superintendent’s Office for the period June 1998 through June 2004. The
investigation determined the amount of public monies misused, if any, during that period and
the extent to which those monies had been misused.
The investigation consisted primarily of inquiries and examination of selected financial records
and other documentation. Therefore, the investigation was substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards. Accordingly, the
Office does not express an opinion on the adequacy of the financial records or the internal
controls of the Santa Cruz County School Superintendent’s Office. The Office also does not
ensure that all matters involving the County’s internal controls that might be material
weaknesses under standards established by the American Institute of Certified Public
Accountants or other conditions that may require correction or improvement have been
disclosed.
The accompanying Investigative Report describes the Office’s findings and recommendations
as a result of this special investigation.
After this report is distributed to the members of the Arizona State Legislature, the Attorney
General, and the Santa Cruz County Board of Supervisors, it becomes public record.
Debbie Davenport
Auditor General
Enclosure
In May 2004, the Santa Cruz County Finance Department requested that the Office
of the Auditor General investigate allegations of potential misuse of public monies by
Ms. Hortencia Rodriguez, former Santa Cruz County School Superintendent’s Office
Accounting Specialist. Our Office conducted an investigation and submitted our
report to the Santa Cruz County Attorney. During our investigation, we determined
that Mr. Robert Canchola, Santa Cruz County School Superintendent, may have also
misused public money. Consequently, we submitted an additional report to the
Arizona Attorney General’s Office. Both individuals have been separately charged
with felony offenses. (See Conclusion on page 15.)
Our investigation revealed that from July 1998 through November 2003, Mr.
Canchola may have embezzled at least $16,549. In addition, Mr. Canchola may have
violated conflict-of-interest laws by failing to file disclosure statements and
participating in numerous payments to family-owned businesses totaling $10,175.
Finally, Mr. Canchola authorized or allowed numerous improper payments totaling
$21,254 that may not have been criminally charged due to the nature of certain
records. Our investigation also revealed that from September 1998 through April
2004, Ms. Rodriguez may have embezzled at least $8,500.
Ms. Rodriguez and Mr. Canchola were able to independently embezzle public
monies undetected for nearly 6 years because of poor internal controls within the
Santa Cruz County School Superintendent’s Office. Specifically, checks were issued
without being independently approved or reconciled to supporting documents or
financial records.
Office of the Auditor General
SUMMARY
page i
State of Arizona
page ii
Office of the Auditor General
TABLE OF CONTENTS
1
3
3
5
7
9
11
13
15
3
5
7
9
Introduction & Background
Finding 1: Employee embezzled public monies
Actions by Mr. Robert Canchola
Actions by Ms. Hortencia Rodriguez
Finding 2: Superintendent engaged in conflicts of
interest
Finding 3: Superintendent misused public monies
Finding 4: County School’s Office failed to ensure
adequate controls
Recommendations
Conclusion
Exhibits:
1 Alleged Theft Schemes
July 1998 to April 2004
2 Personal Payments for Hortencia Rodriguez
September 1998 to April 2004
3 Conflicts of Interest
January 1999 to March 2003
4 Misuse of Public Money
June 1998 to June 2004
page iii
continued
State of Arizona
TABLE OF CONTENTS
Figures:
1 Robert Canchola—Payments for Personal Debts and Expenses
July 1998 to November 2003 4
concluded
page iv
Santa Cruz County encompasses about 1,250 square miles in southern Arizona,
bordering the country of Mexico. The Santa Cruz County School Superintendent’s
Office, located in Nogales, provides administrative services to 6 school districts and
more than 10,500 students, and employs approximately 8 staff members. The
County School Superintendent’s Office fiscal year 2004 general fund expenditures
were $1,089,157.
Mr. Canchola has been the Santa Cruz County School Superintendent since first
elected in 1993. The Superintendent is responsible to Arizona citizens in general and
to county students, parents, teachers, and taxpayers in particular for establishing
internal controls to help ensure the prudent use of public money.
Ms. Rodriguez began her employment with the County School Superintendents’
Office as an Accounting Specialist in 1986. She was responsible for processing
payments related to county, state, and federal funds. The County terminated Ms.
Rodriguez’s employment on July 30, 2004.
Office of the Auditor General
INTRODUCTION
& BACKGROUND
page 1
State of Arizona
page 2
Employee embezzled public monies
From July 1998 through April 2004, Mr. Robert
Canchola, Santa Cruz County School
Superintendent, and Ms. Hortencia Rodriguez,
former Accounting Specialist, embezzled at least
$25,049 from the Santa Cruz County School
Superintendent’s Office by improperly
authorizing checks for their own personal
purposes. See Exhibit 1. During a 6-year period,
these individuals may have repeatedly violated
state laws related to theft, fraudulent schemes,
and misuse of public monies.
Actions by Mr. Robert Canchola
As a public official, Mr. Canchola is entrusted by the local community to prudently
manage county assets; however, from July 1998 to November 2003, Mr. Canchola
allegedly embezzled at least $16,549 by fraudulently authorizing Santa Cruz County
School Superintendent’s Office checks to pay his personal debts. See Figure 1, page
4.
Wedding Expenses
Mr. Canchola established a checking account for a fictitious business and created a
false invoice in order to use public money to pay expenses for his March 2001
wedding. Although no business license exists, Mr. Canchola submitted to the County
School’s Office an $8,380 invoice for "grant administrative services" requesting
payment to Santa Cruz County Math & Science Consortium. This consortium had no
Office of the Auditor General
FINDING 1
page 3
Description Total
Payments for Mr. Canchola’s personal debts
and expenses
$16,549
Personal payments to Ms. Rodriguez and her
family members
8,500
Total theft $25,049
Alleged Theft Schemes
July 1998 to April 2004
Exhibit 1:
Source: Auditor General staff analysis of Santa Cruz County School Superintendent’s
Office, and private business and financial institutions’ records.
legal place of business, and the address listed on
the invoice belonged to a Nogales Mail Boxes Etc.
store. Mr. Canchola then authorized the payment,
personally endorsed the $8,380 county check, and
on March 8, 2001, opened a checking account with
this check at a Nogales bank using his personal
address and a fictitious business name of S.C.C. M
& S Consortium. The false invoice was devoid of any
contract or purchase order reference and did not
include any time frame or place that "grant
administrative services" may have been provided.
The County School’s Office had another document
titled "Wedding" that referenced $8,380. This budget
sheet identified funds of $8,380 and listed costs for
food, beer, a wedding band, mariachis, rehearsal
dinner, photos, a tuxedo, a dress, flowers, and
decorations.
Mr. Canchola issued two more County School’s
Office checks that he then endorsed and deposited
into this checking account. One check was payable to himself and the other was
payable to S.C.C. M & S Consortium. This account was closed a year later without
any legitimate business activity; rather, county funds were secretly used to finance his
personal wedding expenses totaling $9,932. In fact, Mr. Canchola wrote checks out
of this account that were payable to himself, cash, a jewelry business, social hall, and
a beverage company.
Car Loan
From 2001 to 2003, Mr. Canchola made 14 payments totaling $4,841 of County
School’s Office money for the vehicle loan on his Toyota Echo. County files did not
contain any documentation such as an invoice or statement to explain or otherwise
support these payments. The County provides vehicles or mileage reimbursement
for official travel; however, there is no authority for public payment of personal vehicle
loans. Moreover, on the Toyota vehicle purchase agreement, Mr. Canchola did not
indicate the car would be for a "non-personal use." Rather, he selected the option of
"personal, family, or household purposes (personal use).”
State of Arizona
page 4
Wedding Car loan Jeep repairs
$9,932
Total Personal Payments
$16,549
$1,776
$4,841
Robert Canchola—Payments for Personal
Debts and Expenses
July 1998 to November 2003
Figure 1:
Source: Auditor General staff analysis of Santa Cruz County School Superintendent’s Office,
and private business and financial institutions’ records.
Jeep Repairs
Prior to the purchase of the Toyota Echo described above, Mr. Canchola unlawfully
authorized $1,776 for his personal jeep repairs. As previously stated, there is no
authority for public payment of personal vehicle expenses. Actually, in 1998, the
County School’s Office was assigned a 1996 Ford Contour for use in county-related
activities. In 1999 and 2000, Mr. Canchola used County School’s Office money
totaling $1,776 on at least six occasions to pay for repairs on his personal Jeep
Wrangler.
Actions by Ms. Hortencia Rodriguez
Ms. Rodriguez embezzled $8,500 from September 1998 to April 2004 by writing six
county school checks to herself, her husband, and her son for personal purposes.
None of the checks described in Exhibit 2 below, ranging from $500 to $4,000, had
any supporting documentation such as an invoice or even a description of work
performed to explain or otherwise indicate a public purpose for the expenditure. Ms.
Rodriguez admitted to Auditor General staff that she needed money and "borrowed"
it from the County by writing checks to herself and family members. She also said
that she had received the money from the checks written to her husband and her
son.
Office of the Auditor General
page 5
Date Payee Amount
09-10-98 G. Rodriguez $1,000
12-05-00 M. Rodriguez 500
10-31-01 G. Rodriguez 1,800
11-27-02 H. Rodriguez 700
02-11-04 H. Rodriguez 500
04-30-04 H. Rodriguez 4,000
Total $8,500
Personal Payments for Hortencia Rodriguez
September 1998 to April 2004
Exhibit 2:
Source: Auditor General staff analysis of Santa Cruz County School Superintendent’s Office
and private financial institutions’ records.
State of Arizona
page 6
Superintendent engaged in conflicts of interest
As illustrated in Exhibit 3, Mr. Canchola may have violated conflict-of-interest laws by
repeatedly authorizing payments from January 1999 through March 2003 totaling
$10,175 to his wife’s business and a family-owned
business along with failing to properly disclose his
interest and relationship. To help ensure that
public officials do not improperly use their
position for their own benefit, Arizona law requires
that public officials make known their substantial
interest in any decision as well as refrain from
voting on or participating in that decision. This
disclosure must be made available to the public.
Mr. Canchola needed to simply describe his and
his family members’ financial relationships with
these businesses on a standard county form and
then abstain from contributing to county
decisions that involved those businesses.
LD Consulting Services
From July 2001 through July 2002, Mr. Canchola authorized ten payments totaling
$9,000 to his wife’s business, LD Consulting Services. Mr. Canchola failed to disclose
his substantial interest in this business until February 2002; however, even then he
continued to authorize more payments for his wife’s consulting services. Mr.
Canchola did not provide any contracts to support these payments, and the invoices
state only that consulting services were provided. Consequently, there is no
Office of the Auditor General
page 7
FINDING 2
Entity Relationship Amount
LD Consulting Services Wife’s business $9,000
Canchola Group Inc. Parents’ businesses 1,175
$10,175
Conflicts of Interest
January 1999 to March 2003
Exhibit 3:
Source: Auditor General staff analysis of Santa Cruz County School Superintendent’s
Office, and State of Arizona and Santa Cruz County records.
documentation of what types of consulting services were provided, or to whom they
were provided.
Canchola Group, Inc.
From January 1999 through March 2003, Mr. Canchola authorized nine checks
totaling $1,175 to his parents’ business, Canchola Group, Inc. Although Mr.
Canchola did not disclose his interest with this business on county conflict-of-interest
forms, he did identify Canchola Group, Inc. as an employer of someone in his
household on the 2002 State of Arizona Financial Disclosure Statement forms for
public officers. The payments were for purchases made at McDonald’s restaurants
owned by Canchola Group, Inc. and should have been independently approved by
a county employee unrelated to this business.
State of Arizona
page 8
Superintendent misused public money
From June 1998 through June 2004, Mr. Canchola may have misused at least
$21,254 of public
monies. Although
these expenditures
were not charged as
embezzlement due to
the nature of the
records involved with
the transactions, at a
minimum they
appear to represent
misuse of public
monies as they are
for various purposes
inconsistent with serving the needs of the students, teachers and parents of Santa
Cruz County. (See Exhibit 4.)
Personal credit card payments
From June 1998 through January 2004, Mr. Canchola authorized 61 payments
totaling $15,834 toward the balance on his personal credit card account. Charges on
this account ranged from $1 to $555 and were made at car repair and maintenance
businesses and convenience stores that also provided fuel. In addition, the
statements reflected that CDs, luggage, and cookware were purchased. No
documentation was provided to demonstrate a county function for these expenses.
In fact, the County School Superintendent’s Office was assigned a county vehicle for
traveling purposes in which fuel charges were properly included on a county gas
credit card, and car maintenance services were provided through the county fleet
service. Further, when a county employee is authorized to use their personal vehicle
Office of the Auditor General
FINDING 3
page 9
Description Amount
Superintendent’s personal credit card payments $15,834
Flowers and food for Superintendent and staff 4,351
Unsupported payments to Superintendent, his wife, and IRS 1,069
Total $21,254
Misuse of Public Money
June 1998 to June 2004
Exhibit 4:
Source: Auditor General staff analysis of Santa Cruz County School Superintendent’s Office records.
for a county purpose, they are reimbursed for mileage at a standard rate using a
standard county form and are not paid directly for any gas purchases. Mr. Canchola
was aware of the proper reimbursement procedure, having submitted at least 54
travel reimbursement forms during this time period. Accordingly, he had already been
compensated over $13,000 for travel-related expenses, including reimbursement for
mileage.
Flowers and food
On 47 occasions during fiscal years 1999 through 2004, the Superintendent
authorized $3,288 payable to a local Nogales deli for his and County Schools Office
employees’ breakfasts and lunches. Mr. Canchola also used $1,063 of county money
for flowers. The Arizona Constitution prohibits the use of public money for private
benefit unless that benefit is incidental to a public purpose being served by the
expenditure and the public value is not far exceeded by the amount being paid. Any
public purpose that may have been associated with these gifts was not documented.
Unsupported payments
The Superintendent authorized several payments totaling at least $1,069 that were
not supported with appropriate documentation necessary to maintain the correct
standard for expending public monies. In February 2004, Mr. Canchola authorized a
$500 payment to his wife that had no supporting documentation. Accordingly, it is
unknown if any materials or services were provided. Further, in October 1998, he
signed a check in the amount of $343 payable to the Internal Revenue Service
reportedly for late fees associated with an unknown entity and failed to demonstrate
if there was any public purpose for such expenditure. Lastly, Mr. Canchola received
money he was not entitled to when he reimbursed himself twice for expenses totaling
$226.
State of Arizona
page 10
County School’s Office failed to ensure adequate
controls
The Santa Cruz County School Superintendent’s Office failed to implement an
adequate system of internal controls for their disbursements. In fact, the
Superintendent established a business climate that did not encourage the prudent
use of public money or promote the expectation that expenditures of public money
should have a public purpose. As a result, Mr. Canchola and Ms. Rodriguez were
able to embezzle public money for nearly 6 years.
As the Superintendent, Mr. Canchola was able to instruct his employees to issue
payments to vendors without any additional supervisory approval and without
providing any supporting documentation such as a receipt or invoice. Therefore,
because of his management position, Mr. Canchola was able to carry out his
misappropriations without detection.
In addition, because the County School’s Office allows checks to be printed directly
from their computer system with the Superintendent’s signature, checks could be
issued without any written supervisory approval. Therefore, Ms. Rodriguez was
basically able to enter payee and amount information into the computer system and
print out a check containing the authorized signature without any additional oversight
control.
Furthermore, no one performed an independent reconciliation between records of
the County School’s Office and the Treasurer’s Office for the accounts for which Ms.
Rodriguez was responsible. If this had been done, the improper payments could
have been discovered and deterred.
Office of the Auditor General
Finding 4
page 11
State of Arizona
page 12
Office of the Auditor General
page 13
To help ensure proper control over, and use of, public monies, the Santa Cruz County
School Superintendent’s Office should establish effective internal controls over cash
disbursements, including policies and procedures and monitoring of compliance with
those policies and procedures. Specifically, the Office should ensure that:
1. No individual employee has responsibility for the entire cash disbursement
process. Accordingly, the Office should properly segregate the following
functions:
• Authorizing expenditures
• Signing checks electronically or manually
• Reconciling disbursements to Treasurer’s Office records
These functions can be effectively separated among the office staff and can be
further strengthened by means of an appropriate secondary review and approval
process.
2. Expenditures are only processed based on proper documentation. Such
documentation includes, but is not limited to, properly approved purchase
requisitions, purchase orders, and vendor invoices.
3. The individual approving the expenditure should be independent of processing
the payment and signing the check. Expenditures should only be approved if
they support the needs of the County School’s Office in its role to serve the
public, and in particular, the community’s students, parents, citizens, teachers,
and schools. Public money should not be used for private benefit unless that
benefit is incidental to a public purpose being served by the expenditure and the
public value is not far exceeded by the amount being paid.
4. Periodic monitoring by an independent entity is performed to ensure that all
policies and procedures are being followed.
RECOMMENDATIONS
State of Arizona
page 14
The Santa Cruz County Attorney and the Arizona Attorney General’s Office took
separate criminal actions against Ms. Hortencia Rodriguez and Mr. Robert Canchola,
respectively, resulting in criminal charges for both individuals.
On September 26, 2005, in the Santa Cruz County Superior Court, Ms. Rodriguez
pled guilty to theft and was sentenced to 30 days in the county jail and ordered to
pay $8,500 restitution.
On October 19, 2005, the Arizona Superior Court Grand Jury indicted Mr. Canchola
on a total of 40 counts related to theft, fraudulent schemes, misuse of public money,
and conflicts of interest.
Office of the Auditor General
page 15
CONCLUSION