A REPORT
TO THE
ARIZONA LEGISLATURE
Debra K. Davenport
Auditor General
Maricopa County
Attorney’s Office
Theft of Public Monies
Special Investigative Unit
September • 2002
Investigative Report
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
Representative Roberta L. Voss, Chair Senator Ken Bennett, Vice Chair
Representative Robert Blendu Senator Herb Guenther
Representative Gabrielle Giffords Senator Dean Martin
Representative Barbara Leff Senator Peter Rios
Representative James Sedillo Senator Tom Smith
Representative James Weiers (ex-officio) Senator Randall Gnant (ex-officio)
Investigative Staff
George Graham, Manager and Contact Person
Jason Hadavi, Lead Auditor
Holly Frook
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.auditorgen.state.az.us
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
September 11, 2002
Members of the Arizona Legislature
The Honorable Richard Romley
Maricopa County Attorney’s Office
The Honorable Janet Napolitano
Attorney General
We have conducted a special investigation of the Maricopa County Attorney’s Office for the
period April 1997 through September 2001. Our investigation was performed to determine the
amount of public monies misused, if any, during that period, and the extent to which these
monies had been misused.
Our investigation consisted primarily of inquiries and an examination of selected records and
other documents. Therefore, our investigation was substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards. Accordingly, we do not
express an opinion on the adequacy of the financial records or the internal controls of the
Maricopa County Attorney’s Office. We also do not ensure that all matters involving the Office’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 our findings and conclusion as a result of this
special investigation.
After this report is distributed to the members of the Arizona State Legislature, the Maricopa
County Attorney, and the Attorney General, it becomes public record.
Debbie Davenport
Auditor General
Attachment
In December 2001, the Maricopa County Attorney’s Office requested that the Office
of the Auditor General investigate allegations of financial misconduct by Ms. Marlene
Larson, the former Assistant Controller for the Maricopa County Attorney’s Office. Our
Office and the Maricopa County Attorney’s Office conducted concurrent
investigations of those claims and submitted separate reports to the Attorney
General’s Office. The Attorney General has taken criminal action against Ms. Larson.
See the Conclusion on page 11.
Our investigation revealed that from July 1997 to May 2001, Ms.
Larson allegedly embezzled at least $30,815 from the Maricopa
County Attorney’s Office Anti-Racketeering Influenced and Corrupt
Organizations (RICO) fund. These public monies were entrusted to
the County Attorney by various law enforcement agencies as a result
of state law.
Ms. Larson attempted to conceal her actions through a number of
fraudulent schemes including disposing of documentation, falsifying documentation,
and manipulating financial reports. As a result of her actions, the agencies and the
County Attorney’s Office may have lost interest earnings of approximately $3,819 in
addition to the money embezzled.
Because internal controls were inadequate, the County Attorney’s Office was unable
to deter or detect Ms. Larson’s alleged thefts. Although two departments and
multiple employees participated in the deposit process, duties were not properly
segregated. Consequently, Ms. Larson’s scheme continued for almost 4 years.
page i
Office of the Auditor General
SUMMARY
Marlene Larson, former
Assistant Controller, allegedly
embezzled at least $30,815
from the Maricopa County
Attorney’s Office RICO fund.
page ii
State of Arizona
page iii
Office of the Auditor General
TABLE OF CONTENTS
concluded
1
3
7
9
11
4
6
Background
Finding 1: Employee embezzled public monies
Finding 2: County attorney management failed
to maintain adequate controls
Recommendations
Conclusion
Exhibits:
1 RICO Forfeiture Fund Embezzlement Time Line
2 RICO Forfeiture Fund Embezzlement Summary Table
page iv
State of Arizona
The Maricopa County Attorney’s Office is responsible for prosecuting all felonies that
occur within Maricopa County and all misdemeanors that occur in unincorporated
areas of the County. In addition, the County Attorney serves as legal counsel for the
Maricopa County Board of Supervisors and all county departments. The County
Attorney’s Office employs over 900 lawyers, investigators, administrators, and
support staff.
RICO monies are seized currency and proceeds from the sale of seized
assets forfeited in the prosecution of racketeering crimes. A.R.S. §§13-
2314.01 and 13-2314.03 require all state and local law enforcement agencies
to maintain RICO monies with either the Attorney General or the local County
Attorney, based on their discretion. The RICO fund maintained by the
Maricopa County Attorney’s Office is a revolving fund made up of a checking
account and a trust account for more than 20 law enforcement agencies. On
average, the RICO fund balance exceeds $8 million. The agencies are generally
required to allocate 20 percent of their deposits to the County Attorney’s Office for
prosecution assistance.
The Maricopa County Attorney’s Office Financial Bureau is responsible for preparing
the Office’s budget, processing a biweekly payroll, overseeing payment of invoices,
preparing periodic grant reports, conducting internal audits, and administering
special funds. RICO monies are first remitted to the Investigations
Division and are ultimately delivered to the Financial Bureau. However,
the Financial Bureau lacked the internal controls necessary to ensure that
these monies are safeguarded. Most importantly, the Financial Bureau’s
internal controls did not separate responsibilities for cash-handling and
recordkeeping functions between employees. For example, the RICO
Administrator was able to receive, record, deposit, and report RICO
monies. Also, in the RICO Administrator’s absence, the Assistant
Controller performed these activities. In addition, the Assistant Controller
was responsible for reconciling the Financial Bureau ledger system to the
monthly bank statements. However, the reconciliation procedures failed to agree the
original receipts to either the ledger system or the bank statements. Because the
Financial Bureau’s internal controls failed to prevent and detect unusual activities,
Ms. Larson was able to conceal her actions for nearly 4 years.
page1
Office of the Auditor General
BACKGROUND
The RICO fund
has an average
balance of over
$8 million.
The Maricopa County
Attorney’s Office Financial
Bureau lacked internal
controls necessary to
adequately safeguard RICO
monies.
Ms. Larson became the RICO Administrator in April of 1997. She was later promoted to
Assistant Controller, where she continued to exercise power over the RICO fund. She
held this position until her resignation in December 2001.
At the time of Ms. Larson’s resignation, the County Attorney’s Office requested that the
Office of the Auditor General investigate the allegations of her financial misconduct.
Both agencies began conducting concurrent investigations. The investigations were
concluded in June 2002 and subsequently submitted to the Attorney General’s Office.
page2
State of Arizona
Employee embezzled public monies
From July 1997 to May 2001, Ms. Marlene Larson, former Assistant Controller,
allegedly embezzled $30,815 from the Maricopa County Attorney’s Office. Ms.
Larson allegedly removed cash from 27 RICO forfeitures remitted to the County
Attorney’s Office by 6 law enforcement agencies. The agencies and the County
Attorney’s Office may have lost the ability to earn approximately $3,819 in interest.
Ms. Larson attempted to conceal her actions through a number of fraudulent
schemes, including disposing of documentation, falsifying documentation,
and manipulating information in the Financial Bureau ledger system.
Within months of becoming the RICO Administrator, Ms. Larson allegedly
embezzled several thousand dollars by taking advantage of insufficient
control procedures. Ms. Larson was solely responsible for both cash-handling
and recordkeeping functions. She received, recorded, deposited,
reported, and reconciled RICO monies.
The $30,815 allegedly embezzled by Ms. Larson consisted of individual thefts
ranging from $103 to $4,500. Because Ms. Larson freely wielded extensive control
over RICO functions, she was able to conceal her actions in the following ways:
altering the original amount on receipt forms by writing a lesser amount
entering false deposit amounts in the Financial Bureau ledger
system
preparing false reconciliations that concealed her actions
sending false reports to law enforcement agencies
failing to retain the supporting documentation for numerous forfeitures
For an extended period of time between 1997 and 1999, several law enforcement
agencies were allowed to remit RICO forfeitures directly to the Financial Bureau
instead of the Investigations Division. Accordingly, Ms. Larson was presented with an
opportunity to remove monies before any division or department had recorded them.
page3
Office of the Auditor General
FINDING 1
Ms. Larson allegedly
stole different cash
forfeitures ranging from
$103 to $4,500 at a time.
As Ms. Larson was responsible for initially receiving and recording RICO monies, it is
possible that forfeitures were not recorded in order to conceal acts of theft. For this
reason, not all embezzlements may be accounted for.
From July 1997 to March 1999, Ms. Larson controlled the receiving, recording,
depositing, reporting, and reconciling of RICO monies and allegedly embezzled at
least $18,197.
page4
State of Arizona
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
Jul.
Sep.
Nov.
Jan.
Mar.
May.
Jul.
Sep.
Nov.
Jan.
Mar.
May.
Jul.
Sep.
Nov.
Jan.
Mar.
May.
Jul.
Sep.
Nov.
Jan.
Mar.
May.
Amount Embezzled
July 1997 - March 1999
December 2000 - February 2001
May 2001
Exhibit 1: Maricopa County Attorney’s Office RICO Forfeiture Fund
Embezzlement Time Line
1997 1998 1999 2000 2001
$18,197
11,766
852
page5
Office of the Auditor General
With her promotion to assistant controller and the hiring of a new RICO Administrator,
Ms. Larson was removed from direct access to RICO monies. No evidence
illustrated that thefts occurred while the new RICO Administrator was responsible
for the cash-handling and recordkeeping functions.
Ms. Larson used her supervisory role to temporarily regain control of the RICO
fund between November 2000 and February 2001. Specifically, Ms. Larson
instructed the RICO Administrator to concentrate on other responsibilities while
Ms. Larson fulfilled the RICO cash-handling and recordkeeping functions.
Consequently, Ms. Larson allegedly embezzled nearly $12,000 during this time
period.
In May 2001, Ms. Larson took advantage of another situation. County policy
inappropriately requires the Assistant Controller to fulfill the RICO cash-handling
and recordkeeping functions in the RICO Administrator’s absence. Specifically,
when the RICO Administrator was on a 3-day leave, Ms. Larson allegedly embezzled
four different cash forfeitures totaling over $800.
Ultimately, in December 2001, the RICO Administrator began reviewing deposits to
the RICO fund in anticipation of an internal audit. During the review, the RICO
Administrator discovered several forfeitures that were not deposited and
consequently notified management. On December 17, 2001, management
confronted Ms. Larson about the missing money and she immediately resigned.
Exhibit 2 on page 6 details the individual thefts.
There is no record of
money missing when
Marlene Larson’s cash-handling
and record-keeping
responsibilities
were removed.
page6
State of Arizona
Source: MCAO records and Bank of America records.
1 This forfeiture was incorrectly remitted directly to the Financial Bureau on July 24, 1997. It
was not reported to the Investigations Division until August 5, 1997.
Remitting Agency
Date
Recorded by
Investigations
Forfeiture
Amount
Stolen
Percentage of
Total Forfeiture
%
Maricopa County Sheriff’s Office
8-5-97 1 $ 1,500.00
93%
Maricopa County Sheriff’s Office 9-23-97 775.00 100
Maricopa County Sheriff’s Office 10-6-97 2,069.00 100
Maricopa County Sheriff’s Office 12-9-97 985.61 100
Maricopa County Sheriff’s Office 2-9-98 4,500.00 50
Maricopa County Sheriff’s Office 3-25-98 1,047.00 100
Maricopa County Sheriff’s Office 5-7-98 1,745.00 100
Maricopa County Sheriff’s Office 5-7-98 123.00 10
Scottsdale Police Department 7-9-98 460.80 20
Arizona Department of Corrections 8-12-98 1,000.00 37
Maricopa County Sheriff’s Office 8-19-98 280.60 20
Maricopa County Sheriff’s Office 8-19-98 340.00 20
Maricopa County Sheriff’s Office 8-19-98 103.20 20
Maricopa County Sheriff’s Office 9-15-98 500.00 16
Scottsdale Police Department 9-22-98 336.00 21
Maricopa County Sheriff’s Office 3-12-99 2,432.00 100
Goodyear Police Department 12-4-00 1,010.00 100
Avondale Police Department 1-9-01 712.27 100
Avondale Police Department 1-9-01 534.95 100
Avondale Police Department 1-9-01 793.10 100
Maricopa County Sheriff’s Office 1-12-01 2,450.00 89
Scottsdale Police Department 1-30-01 1,800.00 24
Tolleson and Avondale Police Departments 2-20-01 4,465.43 100
Avondale Police Department 5-21-01 163.63 20
Avondale Police Department 5-21-01 270.20 20
Avondale Police Department 5-21-01 229.20 20
Avondale Police Department 5-21-01 189.20 20
Total
$30,815.19
Exhibit 2: Maricopa County Attorney’s Office RICO Forfeiture Fund
Embezzlement Summary Table
page7
Office of the Auditor General
FINDING 2
County attorney management failed to maintain
adequate controls
The County Attorney’s Office management failed to implement an adequate system
of internal controls. In fact, the RICO-related controls in place left management
unable to prevent or detect acts of theft.
Financial Bureau management failed to properly separate responsibilities for cash-handling
and recordkeeping between employees. The RICO Administrator received,
recorded, deposited, and reported all RICO
monies. Although the Assistant Controller
was responsible for reconciling the bank
statements to the Financial Bureau ledger
system, the RICO Administrator improperly
performed this function.
Further, the County Attorney’s Office policy
specified that the Assistant Controller perform
the RICO duties in the RICO Administrator’s absence. Therefore, the Assistant
Controller improperly exercised undue control over the RICO fund whenever the
RICO Administrator was absent.
Financial Bureau management also allowed staff to perform faulty and insufficient
reconciliations of the RICO fund. Particularly, bank statements were reconciled only
to the incomplete and altered Finance receipt copies rather than original receipts
held by the Investigations Division. Further, the reconciliation improperly included
ledger amounts in place of bank statement amounts, inadequately reconciling the
ledger to itself instead of to the bank statement.
In addition, management did not ensure the integrity of the Financial Bureau ledger
system or the resultant accuracy of reports generated from that system. No controls
were established to prohibit retroactive changes or deletions of information in the
ledger system. Although law enforcement agencies are provided with monthly
Financial Bureau management failed to
separate cash-handling and recordkeeping
responsibilities and allowed staff to
perform flawed reconciliations.
reports documenting their RICO activity, including deposits and withdrawals, certain
reports omitted or falsely stated cash forfeitures.
Financial Bureau management also failed to ensure monies were deposited in a
timely manner. RICO forfeitures were kept in the office for up to 1 month after receipt
while County Attorney policy requires at least weekly deposits. Further, management
allowed employees to make deposits after work hours and at branch offices over 17
miles away from the County office, even though the bank’s home office is only a few
blocks away. Further, monies not deposited were stored in the RICO Administrator’s
locking desk drawer rather than a locked safe or vault.
Finally, the County Attorney’s Office management failed to ensure that RICO monies
were remitted to the Investigations Division. County Attorney RICO procedures state
that forfeitures are to be delivered to the Investigations Division, where the forfeiture
should be initially and independently recorded. However, for an extended period of
time, County Attorney management allowed law enforcement agencies to remit
forfeitures directly to the Financial Bureau. This failure exacerbated the inadequate
system of internal controls.
page8
State of Arizona
To help ensure proper control over public monies, management should implement
several policies and procedures as stated below.
1. No individual employee should have responsibility for cash-handling and
recordkeeping functions. Accordingly, the following functions should be
properly segregated:
receiving cash and check forfeitures
recording forfeitures in the ledger system
depositing cash and check forfeitures
reporting RICO activity to law enforcement agencies
reconciling original receipts to the bank statements and ledger system
2. Cash and checks should be properly secured in locking safes or cash boxes.
Access should be restricted to a limited number of employees.
3. All deposits should be made on a timely basis, preferably daily.
4. Management should require independent approval for all changes made in the
ledger system.
5. The ledger system should be backed up on a regular basis.
6. Status reports of agencies’ accounts should be generated from the ledger
system in conjunction with the reconciliation.
7. Monthly reconciliations should be independently reviewed and approved.
8. Policies and procedures should be established and implemented to address the
proper assignment of functions in the absence of specific personnel.
9. Management should establish monitoring practices to ensure that all policies
and procedures are followed.
page9
Office of the Auditor General
RECOMMENDATIONS
page10
State of Arizona
On September 10, 2002, the Attorney General’s Office took criminal action against
Ms. Marlene Larson through the Superior Court Grand Jury. This action resulted in a
two-count indictment, including theft and fraudulent schemes.
page11
Office of the Auditor General
CONCLUSION
