Special Investigation
Santa Cruz Valley
Union High School
District No. 840
Theft and Misuse of Public Monies
Special Investigative Unit
Debra K. Davenport
Auditor General
SEPTEMBER • 2007
A REPORT
TO THE
ARIZONA LEGISLATURE
The 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 John Nelson, Vice Chair
Senator Carolyn Allen Representative Tom Boone
Senator Pamela Gorman Representative Jack Brown
Senator Richard Miranda Representative Pete Rios
Senator Rebecca Rios Representative Steve Yarbrough
Senator Tim Bee (ex-officio) Representative Jim Weiers (ex-officio)
Audit Staff
George Graham, Manager
Marcia Taplin, Senior
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
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
WILLIAM THOMSON
DEPUTY AUDITOR GENERAL
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
September 14, 2007
Members of the Arizona Legislature
Governing Board
Santa Cruz Valley Union High School District No. 840
The Honorable Terry Goddard
Attorney General
The Honorable Tom Horne
State Superintendent of Public Instruction
The Office of the Auditor General has conducted a special investigation of the Santa
Cruz Valley Union High School District No. 840 for the period February 2005 through
February 2006. The investigation determined the amount of public monies misused, if
any, during that period and the extent to which those monies were 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 Santa Cruz Valley Union High School District
No. 840. The Office also does not ensure that all matters involving the District’s internal
controls, which 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 State Superintendent of Public Instruction, it becomes public
record.
Debbie Davenport
Auditor General
Enclosure
page i
Office of the Auditor General
SUMMARY
In September 2006, the Pinal County Attorney’s Office requested that the Office of
the Auditor General investigate allegations of financial misconduct by Ms. April Smith,
former student activities secretary for the Santa Cruz Valley Union High School
District No. 840. As a result, our Office conducted an investigation of those financial
improprieties and submitted our report to the Pinal County Attorney’s Office. During
our investigation, we determined that Ms. Smith embezzled and misused public
money as well as falsified public records in order to conceal her crimes. The Pinal
County Attorney has taken criminal action against Ms. Smith, which resulted in her
indictment on felony charges. See the Conclusion on page 11 of this report.
Our investigation revealed that from February 2005 to February 2006, Ms. Smith
embezzled at least $11,000 and misused an additional $7,899.
This former employee used money raised by students for their
activities such as prom and class trips and for uniforms to pay
$11,000 worth of her personal expenses including childcare,
automobile insurance, and a trip to Disneyland. Ms. Smith also
misused an additional $7,899 of public money by failing to
deposit student activities cash and checks into the District’s bank
account. Instead, she improperly kept those receipts in her desk
drawer, including some checks that were kept there for almost a
year, which allowed Ms. Smith to perpetuate her theft scheme.
Further, she attempted to conceal her criminal actions by
producing false financial reports regarding the student activities
finances.
Despite repeated recommendations from the District’s external
auditors, management failed to establish appropriate safeguards over these student
activities monies. The District’s lack of internal controls allowed Ms. Smith to
embezzle money for a year without being detected. Ms. Smith controlled student
activities cash receipts from the point of collection to deposit without any oversight.
In addition, no other employee consistently reviewed the bank statements or
otherwise verified reported transactions.
Investigation Highlights:
Ms. Smith embezzled at least
$11,000.
Ms. Smith misused public
money by withholding $7,899
from the District for almost a
year.
Ms. Smith falsified public
records to conceal her
fraudulent scheme.
page ii
State of Arizona
Office of the Auditor General
TABLE OF CONTENTS
end
1
3
5
7
9
11
3
5
Introduction & Background
Finding 1: Employee embezzled public monies
Finding 2: Employee tampered with public documents
Finding 3: District management failed to establish and
maintain adequate controls
Recommendations
Conclusion
Figure:
1 Use of Embezzled Monies
February 2005 through February 2006
Exhibit:
1 Falsified Student Activities Account Financial Reports
June 2005 through February 2006
page iii
State of Arizona
page iv
The Santa Cruz Valley Union High School District No. 840 is located in Eloy, Arizona,
within the Pinal County boundaries. Santa Cruz Valley Union High School is the sole
school in the District, with approximately 500 students in grades 9 through 12. The
District is accountable to its students, their parents, and the local community for the
quality of education provided. The District is also financially accountable to taxpayers
for the more than $6 million it received in fiscal year 2006 to provide this education to
its enrolled students.
As the District’s student activities secretary since August 2004, Ms. April Smith was
responsible for the proper accounting of monies raised by student organizations
within the District. Ms. Smith worked under the supervision of the District’s business
manager. Prior to holding this position, Ms. Smith assisted the business manager
with accounts payable and invoice processing for 2 years.
On March 3, 2006, Ms. Smith personally repaid the District $11,000 by depositing
cash directly into the District’s student activities bank account. She admitted to the
business manager that she had stolen district monies and she resigned from her
position.
History of financial mismanagement
Over the past 18 years, the District has had a history of problems relating to its
internal control deficiencies and failure to comply with the Uniform System of Financial
Records (USFR). The USFR prescribes the minimum internal control policies and
procedures to be used by Arizona school districts for accounting, financial reporting,
budgeting, attendance reporting, and various other compliance requirements. Since
1989, the District’s external auditors have made various recommendations to
establish and strengthen key internal controls, including, but not limited to, student
activities cash receipts; segregating the cash-handling and recordkeeping functions
among employees for the District’s bank accounts; and following School District
Procurement Rules. For the year ended June 30, 2004, the District was found to be
in noncompliance with the USFR. A subsequent status review on the District relating
to those deficiencies and deficiencies cited in the District's audit reports for the year
Office of the Auditor General
INTRODUCTION
& BACKGROUND
page 1
State of Arizona ended June 30, 2005, found the District in continued noncompliance. As a result, in
September 2006 the Arizona State Board of Education directed the Superintendent
of Public Instruction to withhold state monies from the District until the deficiencies
were corrected. Since October 2006, $95,879 has been withheld. The District’s poor
financial management also directly impacts its mission to educate its students. For
fiscal year 2006, this district ranked among the lowest in the State in terms of how
much money it spent on classroom activities (188 of 229 districts).
State of Arizona
page 2
Employee embezzled public monies
From February 2005 to February 2006, Ms. April Smith, in her capacity as student
activities secretary, embezzled at least $11,000 of Santa Cruz Valley Union High
School District monies to pay her personal debts. Ms. Smith used the stolen monies
primarily to pay her childcare expenses, but she also used the money to pay her
monthly cell phone bill and automobile insurance, and for a winter trip to Disneyland
for her family. Over this 1-year period, Ms. Smith repeatedly violated state laws
related to theft, misuse, and fraudulent schemes to pay for these personal expenses.
In addition, Ms. Smith misused at least $7,899 by withholding cash and checks from
the District and storing them in her office desk drawer for periods ranging from 19 to
340 days after their collection.
Ms. Smith was solely responsible for collecting,
recording, depositing, and reconciling all
receipts raised by student organizations. In
fact, she exercised complete control over the
District’s student activities account with little
to no supervision. As such, management
may have detected or deterred Ms. Smith’s
thefts had proper monitoring and oversight
identified her failure to properly account for
and safeguard student activity receipts and
consistently prepare bank reconciliations.
Skimming cash before deposit
From February 2005 through February 2006,
Ms. Smith embezzled at least $11,000 and
she used the monies to pay her personal
expenses. Based on Ms. Smith’s explanation
of those expenses, at a minimum she used the
embezzled monies to pay her personal debts, as illustrated in Figure 1.
page3
Office of the Auditor General
FINDING 1
Childcare
$7,800
Auto Insurance
$2,400
Cellular Phone
$600
Disneyland
$200
Use of Embezzled Monies
February 2005 through February 2006
Figure 1:
Source: Auditor General staff interview of April Smith.
Ms. Smith collected student activities receipts from teachers and students within the
District on a regular basis. However, Ms. Smith did not deposit or record on any
district record the total amount of money she received on behalf of the student
activities fund. Instead, she kept some of the cash, placed some cash and checks in
her desk drawer, and deposited any remaining cash and checks. Ms. Smith
continued this scheme for approximately 1 year, taking district money as it was
available and using it for her personal expenses. Her scheme was discovered during
the last week of February 2006, when the financial auditors were scheduled to arrive.
Ms. Smith indicated to Auditor General staff that she did not come to work because
she was afraid the auditors would detect her thefts. During her absence, district
employees discovered $7,899 in her desk drawer.
District bank statements, deposit records, and monthly financial reports
revealed that Ms. Smith recorded approximately $7,600 of her thefts. Ms.
Smith deliberately failed to record the remaining amounts of cash she took
from student activities receipts. Ms. Smith could not remember the exact
amount she had stolen from the District and stated that she could repay only
$11,000. On March 3, 2006, Ms. Smith repaid the District $11,000 by
depositing that amount into the student activities bank account. She obtained
that amount in cash by selling her automobile and receiving a gift from a relative. On
March 4, 2006, Ms. Smith tendered her resignation.
Withholding deposits
From March 2005 through February 2006, Ms. Smith misused at least $7,899 of
public money. Ms. Smith intentionally withheld from the District $5,265 in cash and
39 checks totaling $2,634, with check dates ranging from 19 to 340 days after the
receipts were collected. Accordingly, a district employee who misuses public monies
violates state law, and such conduct constitutes a felony as prescribed under A.R.S.
§38-301.
Because of Ms. Smith’s failure to negotiate the checks in a timely manner, the
District also suffered a financial loss of at least $1,343. Nine checks dated as
far back as March 2005 could not be cashed or deposited when they were
recovered almost a year later because the accounts upon which they were
written were either closed or had insufficient funds.
State of Arizona
page 4
In March 2006, Ms. Smith personally
repaid the District $11,000. She
admitted to stealing from the District,
and she submitted her resignation.
Because Ms. Smith withheld almost
$8,000 from the District for just under a
year, the District lost $1,343 in
revenues.
Employee tampered with public documents
From June 2005 to February 2006, Ms. Smith intentionally filed at least seven public
documents with the District that contained false financial information.
Consequently, a district employee who knowingly tampers with a
public record violates state law, and such conduct constitutes a felony
as prescribed under A.R.S. §13-2407. As the student activities
secretary, Ms. Smith was responsible for preparing a monthly financial
report regarding the student activities account for the District‘s
Governing Board’s review and approval. Because Ms. Smith was
pilfering money from the student activities revenues, she chose to hide her criminal
behavior by submitting false financial information to the Governing Board in which
she reported cash balances that were much higher than the actual bank account
balances. As illustrated in Exhibit 1 below, Ms. Smith reported balances that were
ultimately more than $15,000 greater than the amount actually in the District’s bank
account.
Ms. Smith presented these
reports during public meetings,
falsely purporting the amounts
as true and accurate account
balances. Consequently, the
Governing Board approved
inaccurate student activities
financial reports, filed
according to laws governing
open meeting and public
document procedures.
page5
Office of the Auditor General
FINDING 2
Ms. Smith created false financial
reports to conceal her embezzlement of
district money.
Report Date Report Date Bank Balance Overstated Cash
June 2005 $25,743 $23,739 $ 2,004
August 2005 $27,867 $24,728 $ 3,139
October 2005 $33,042 $20,505 $12,537
November 2005 $37,971 $24,152 $13,819
December 2005 $37,092 $24,851 $12,241
January 2006 $39,172 $25,114 $14,058
February 2006 $37,291 $21,761 $15,530
Falsified Student Activities Account Financial Reports
June 2005 through February 20061
Exhibit 1:
Source: Auditor General staff analysis of district Governing Board reports and district bank records.
1Monthly reports were not available for July and September 2005.
State of Arizona
page 6
District management failed to establish and
maintain adequate controls
The District’s management failed to implement an adequate system of internal
controls over its student activities cash receipt process. In fact, the District’s
insufficient segregation of duties and ambiguous or absent policies weakened its
control environment and allowed Ms. Smith to embezzle and misuse public monies
without being detected for approximately 1 year.
Specifically, management allowed Ms. Smith to collect, record, deposit, and
reconcile all student activities cash and cash receipts without any oversight. An
appropriate level of internal control could have been accomplished by assigning
responsibility for a portion of the cash and cash receipt process to other employees.
At a minimum, cash-handling functions should be separate from recordkeeping
activities. Employees who received cash should not record cash collections into the
District’s accounting ledger or make deposits. Additionally, employees who received
cash should not reconcile this information to receipt and deposit documentation. For
example, the District could have assigned the business manager to reconcile the
bank account, while other administrators, such as the accounts payable clerk and
the receptionist, could divide the responsibilities of preparing the bank deposit and
recording the receipts. Further, maintaining a secondary review process, such as
requiring the superintendent’s approval of monthly bank reconciliations, could have
contributed to an appropriate level of internal control. However, because Ms. Smith
was responsible for all of the cash-handling, recordkeeping, and reconciliation
functions, she was able to embezzle student activities cash without detection.
In addition, management failed to adequately safeguard cash by ensuring that it was
deposited in a timely manner, accurately, and intact. Management was aware of the
constant stream of cash and checks received by Ms. Smith on behalf of student
organizations. In order to safeguard cash receipts, management should deposit
district monies into the bank account at least weekly, or daily when significant. At the
time the theft was discovered, Ms. Smith had failed to deposit $7,899 and had stored
page7
Office of the Auditor General
FINDING 3
the cash and checks in her desk drawer unnoticed by management. Some checks
had been stored there from 19 to 340 days after the receipts were collected. In
addition, management did not ensure that monies were deposited intact, meaning
that all cash receipts were deposited and recorded in their entirety and true form. The
appropriate policies and procedures could have prevented or at least detected Ms.
Smith’s misuse by establishing guidelines and independent review procedures.
Finally, district management failed to properly supervise Ms. Smith. Ms. Smith’s
failure to make timely, accurate deposits, consistently prepare monthly bank
reconciliations, and complete correct financial reports went undetected. Not only did
management fail to ensure monies were deposited intact, but management did not
require and review any bank reconciliations. Further, management failed to properly
review monthly financial reports Ms. Smith prepared for approval from the District’s
Governing Board. Management should establish appropriate policies and
procedures to provide for an independent reconciliation between revenues received
and deposited as well as an independent review of any financial reports.
page8
State of Arizona
Over the years, the District has repeatedly failed to implement the necessary internal
controls. That failure has now resulted in the theft of district monies. To help protect
and ensure the proper use of public monies, the District should establish effective
internal controls over cash receipts including policies, procedures, and monitoring
activities. Specifically, the District’s Governing Board should ensure that the following
actions are taken:
1. The Governing Board should establish and provide formal, written policies
governing student activities procedures. The policies should provide clear
guidelines for the segregation of cash-handling and recording duties, as well as
proper supervision of all student activities functions.
2. The District should ensure that no employee has the ability to carry out all steps
in the cash receipting process. Accordingly, the District should properly
separate among employees the following cash-handling functions:
Receiving cash
Preparing bank deposits
Making deposits at the bank
Recording receipts into the accounting system
These functions can be effectively separated among the business manager and
other administrative staff.
3. The District should document sales at student activities events by issuing
prenumbered cash receipt forms or tickets, by using a cash register, or by
performing counts of items on hand before and after each activity.
4. The District should prepare cash collection or activity reports for student
activities events to document and reconcile cash collections and tickets or items
sold. If it is not practical to sell tickets or count items before and after the sale,
such as for bake sales, clubs should prepare cash collection reports to
document cash collected.
page9
Office of the Auditor General
RECOMMENDATIONS
5. The District should deposit all student activities cash receipts daily, if significant,
or at least weekly into the student activities bank account, and retain bank
deposit slips and reconcile them to validated deposit slips.
6. The District should prepare complete and accurate monthly written bank
reconciliations for the student activities bank account to reconcile bank and
checkbook balances. After the reconciliations have been prepared, investigate
and resolve all differences, and make appropriate corrections. Also, ensure that
the checkbook balance used to reconcile the student activities bank statements
agrees to the student activities check register and accounting records. Bank
reconciliations should be prepared by an employee not responsible for handling
cash or issuing checks.
7. The District should ensure that a report of cash receipts, disbursements,
transfers, and cash balances is prepared monthly by the student activities
treasurer and submitted to the Governing Board in a timely manner.
8. The District should ensure proper monitoring procedures are performed to
govern student activities duties. Controls can be further strengthened by
employing an appropriate secondary review and approval process.
Accordingly, the District should include the following monitoring procedures that
review:
Bank account reconciliations
Financial reports submitted to the Governing Board
page10
State of Arizona
On September 13, 2007, the Pinal County Attorney’s Office took criminal action
against Ms. Smith through the Pinal County Grand Jury. This action resulted in the
indictment of Ms. Smith on a total of 11 counts related to theft, fraudulent schemes,
misuse of public money, and tampering with a public record.
page11
Office of the Auditor General
CONCLUSION
