Special investigation, Pinal County Sheriff's Office, theft of public monies a report to the Arizona Legislature

              Special Investigation
Pinal County
Sheriff’s Office
Theft of Public Monies
Special Investigative Unit
Debra K. Davenport
Auditor General
December • 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 S. Allen Representative Tom Boone
Senator Gabrielle Giffords Representative Ted Downing
Senator John Huppenthal Representative Pete Rios
Senator Harry E. Mitchell Representative Steve Yarbrough
Senator Ken Bennett (ex-officio) Representative Jim P. Weiers (ex-officio)
Investigative Staff
George Graham, Manager
Lindsey Burger, 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
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
December 20, 2005
Members of the Arizona Legislature
Pinal County Board of Supervisors
The Honorable Terry Goddard
Attorney General
The Office of the Auditor General has conducted a special investigation of the Pinal County
Sheriff’s Office for the period January 2002 through September 2003. 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 Pinal County Sheriff’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 Pinal County Board of Supervisors, it becomes public record.
Debbie Davenport
Auditor General
Enclosure
In October 2003, Pinal County Administrators requested that the Office of the Auditor
General investigate allegations of financial misconduct by Ms. Sylvia Martinez, former
Inmate Service Detention Officer for the Pinal County Sheriff’s Office (PCSO). As a
result, our Office conducted an investigation of those financial improprieties and
submitted our report to the Attorney General’s Office. The Attorney General has taken
criminal action against Ms. Martinez, and she has been indicted on felony charges.
See Conclusion on page 13 of this report.
Our investigation revealed that Ms. Martinez may have embezzled at least $11,884
between January 2002 and September 2003. In addition, Ms. Martinez misused
public money by delaying deposits of inmate money totaling $42,840 to help conceal
her theft of $11,884.1 She further attempted to conceal her actions by falsifying and
disposing of documentation, which constitutes tampering with public documents,
and by manipulating information within the PCSO bond accounting system.
The County’s lack of internal controls and inadequate segregation of duties allowed
Ms. Martinez to embezzle money received on behalf of inmates for almost 2 years.
Specifically, in addition to handling and depositing all inmate bonds and commissary
monies, Ms. Martinez was responsible for preparing and signing checks, recording
transactions in the accounting systems, and reconciling bank information. As a
result, Ms. Martinez was able to embezzle public money, and in turn, the County was
unable to deter or detect her thefts.
1 Arizona Revised Statutes §35-302 provides that money belonging to, received or held by a county in their official capacity
is considered public money.
Office of the Auditor General
SUMMARY
page i
State of Arizona
page ii
Office of the Auditor General
TABLE OF CONTENTS
1
3
4
5
5
7
9
11
13
3
4
Introduction & Background
Finding 1: Employee embezzled public monies
Money Order—Cash Substitution Theft
Checks Issued to Relative
Delayed Deposits
Finding 2: Employee tampered with public documents
Finding 3: Sheriff’s Office Management failed to ensure
adequate controls
Recommendations
Conclusion
Exhibits:
1 Alleged Embezzlement Schemes
January 2002 to September 2003
2 Money Order—Cash Substitution
Lapping Scheme
page iii
State of Arizona
page iv
As of June 30, 2004, the Pinal County Sheriff’s Office (PCSO) had 325 employees
with a general fund budget of $15,145,000. The Pinal County Jail is maintained by the
PCSO, and it has the capacity to house up to 700 inmates. In 2004, nearly 9,600
people were booked into the jail.
Ms. Sylvia Martinez began her employment with the PCSO as a detention aide in
1996 and by early 2001, was assigned as a detention officer in the jail’s property
room. In this position, Ms. Martinez was responsible for the bond and inmate
commissary bank accounts that relate to bond activity, commissary purchases, and
inmates’ cash and property. The bond account is used to facilitate the posting of
bonds by inmates held at the jail. To post bond, money orders are remitted on behalf
of the inmate and deposited into the bond account. Following the deposit, a check
is issued from the bond account to the court processing the inmate. The inmate
commissary account is used to hold money confiscated from inmates upon their
arrival at the jail and money remitted by family and friends for inmates to use to
purchase commissary goods while incarcerated.
The PCSO established two separate bank accounts at a local credit union to account
for the bond and inmate commissary activities. In 2003, monthly deposits into these
two accounts ranged from $51,000 to $180,000 for the bond account and from
$33,000 to $174,000 for the inmate commissary account. The PCSO used three PC-based
accounting software packages as their accounting systems to separately
account for bond activity, commissary purchases, and inmates’ cash and property.
In September 2003, PCSO officials became aware of discrepancies within the
deposit process. Specifically, Ms. Martinez allegedly lost money orders that should
have been deposited in the bond and inmate commissary accounts. As a result, they
conducted an initial inquiry and temporarily changed Ms. Martinez’s responsibilities
to exclude the cash-handling function. On October 3, 2003, Ms. Martinez voluntarily
resigned her position with the PCSO.
Office of the Auditor General
INTRODUCTION
& BACKGROUND
page 1
State of Arizona
page 2
Employee embezzled public monies
From January 2002 to September 2003, Ms. Sylvia Martinez, former inmate service
detention officer, allegedly embezzled at least $11,884, and misused approximately
$54,724 in Pinal County Sheriff’s Office funds. Ms. Martinez embezzled public money
from the PCSO jail through two fraud schemes that consisted of taking money
received on behalf of inmates and then falsifying and disposing of documentation, in
addition to manipulating information recorded in the PCSO bond accounting system.
First, as summarized in Exhibit 1 below, Ms. Martinez
embezzled $9,384 by taking cash receipts from
the inmate commissary deposit and substituting
money orders from inmates’ bond payments.
Ms. Martinez concealed the cash shortage by
using bond payments subsequently made by
other inmates to pay the Court for the originating
inmates’ bonds. In doing so, she also
intentionally delayed deposits and bond
payments totaling $42,840 of inmate money
orders—a misuse of public money. Secondly,
Ms. Martinez falsified information in the PCSO
inmate commissary accounting system and
issued a $2,500 PCSO check payable to her
sister for their personal use. In an interview with
Auditor General staff, Ms. Martinez admitted
taking the money to pay her personal bills.
Office of the Auditor General
FINDING 1
page 3
Scheme Type
Number
of Instances Amount
Money Order—Cash Substitution
Lapping Theft
22 $ 9,384
Check Issued to Relative 1 2,500
Total Theft $11,884
Delayed Deposits 56 42,840
Total Funds Misused $54,724
Alleged Embezzlement Schemes
January 2002 to September 2003
Exhibit 1:
Money Order—Cash Substitution Theft
From May 2002 through September 2003, Ms. Martinez embezzled $9,384 by taking
cash receipts from the inmates’ commissary deposits for her personal use. To cover
up this scheme, she fraudulently deposited 22 money orders totaling $9,384
received for inmate bond payments into the inmate commissary account rather than
the bond account. By manipulating the deposit, Ms. Martinez was able to exchange
money orders for cash and embezzle $9,384 of the offsetting cash from the inmate
commissary account deposit.
Each morning, Ms. Martinez collected cash and money orders from the department’s
safe. Depending on the monies that were available, Ms. Martinez embezzled cash
ranging from $30 to $1,000 from the inmate’s commissary account deposit and
replaced it with money orders in the equivalent amount from the bond account
deposit. The money orders would then be deposited into the inmate commissary
account, and the bond account balance would be understated by the amount stolen.
Ms. Martinez then used a lapping scheme to continue her thefts and fund the original
inmate’s bond payment. As illustrated in Exhibit 2, the basic premise for the lapping
scheme involved substituting inmate A’s money order for commissary account cash,
and then using inmate B’s money
order to fund inmate A’s bond
payment. In this case, Ms. Martinez
delayed the bond payment for
inmate A, issuing the payment well
after the original money order was
received rather than the day of
receipt. Ms. Martinez repeated this
process in order to maintain
adequate fund balances within the
bond account. In total, Ms.
Martinez’s lapping scheme affected
at least 70 inmates and their
respective funds.
Ms. Martinez concealed a portion of
her thefts by later depositing money
orders disguised as the original
inmate money orders. Specifically,
she issued new money orders with
embezzled funds, and then she deposited the money orders into the bond account
in order to maintain an adequate balance. In fact, Ms. Martinez personally obtained
and fraudulently submitted 18 money orders, copying information from the original
money order and thereby attempting to pass these items off as money orders
received from PCSO inmates.
State of Arizona
page 4
December 12, 2002
Pinal County 9959
Bond Account
PAY TO THE ORDER OF
South Justice Court
$ 300.00
Memo For Inmate A
4
January 5, 2003
Pinal County 9202
Bond Account
PAY TO THE ORDER OF
North Justice Court
$ 300.00
Memo For Inmate B
6
Incoming Money Order Bond Account
1 December 9, 2002:
$300 (Inmate A)
2 December 12, 2002:
$300 (Inmate B)
5 January 5, 2003:
$300 (Inmate C)
Money to Ms. Martinez
2 Mr. Martinez takes $300
cash from the inmate
commissary account deposit
and substitutes the $300
bond money (#1) to replace
those funds.
Exhibit 2: Money Order—Cash Substitution
Lapping Scheme
Further, Ms. Martinez helped conceal her theft by voiding at least two outstanding
bond account checks totaling $1,000 and using these unclaimed PCSO funds to
subsidize her thefts of cash and to pay personal bills. The two PCSO bond checks
issued to different justice courts were outstanding because they were never cashed.
Since Ms. Martinez was also responsible for performing the bank account
reconciliations, and without another person’s review, no one noticed these long,
outstanding checks and Ms. Martinez was able to redirect the money toward different
inmates’ bonds and toward her own personal use.
Check Issued to Relative
On January 7, 2002, Ms. Martinez embezzled $2,500 of county funds by issuing an
unauthorized check to her sister. Specifically, Ms. Martinez embezzled money
intended for an inmate’s bond by transferring the funds out of the bond account and
into the inmate commissary account. Then, in order to issue a check from the
commissary account, Ms. Martinez falsely reestablished her sister as an inmate in the
accounting system as if she had been readmitted to the jail while carrying $2,500.
Next, she wrote the check payable to her sister and then entered information to
terminate the activity and make it appear like her sister had been released. On
January 7, 2002, Ms. Martinez’s sister deposited the $2,500 into her (the sister’s)
personal checking account and then transferred $575 into Ms. Martinez’s personal
checking account a week later.
Delayed Deposits
In order to perpetrate her lapping scheme and conceal her thefts, Ms. Martinez
intentionally withheld and delayed 56 bond account deposits totaling $42,840 of
inmate money orders. The money was eventually deposited. However, delaying
these deposits helped facilitate Ms. Martinez’s theft of $9,384 and consequently led
to overdue court payments ranging from 3 to 41 days late. Therefore, $42,840 of
public money held by Ms. Martinez in her official capacity was not used for its
intended purpose, but was in fact used for Ms. Martinez’s personal benefit.
Office of the Auditor General
page 5
State of Arizona
page 6
Employee tampered with public documents
From January 2002 through September 2003, Ms. Martinez concealed her thefts
using various fraudulent schemes, including disposing of bond package
documentation (money order copies, booking reports, and bond envelopes),
disguising money orders by forging remitter information onto the face of the money
order, and manipulating information within the bond and inmate commissary ledger
accounting systems. Further, Ms. Martinez filed the falsified documents as a public
record with the County.
From January 2002 to September 2003, Ms. Martinez tampered with documents in
84 different instances:
• Ms. Martinez destroyed bond package documentation, including approximately
53 money order copies.
• Ms. Martinez manipulated 13 money orders. In order to convert the 13
embezzled money orders into cash, Ms. Martinez deceptively deposited money
orders for bond payments as a substitute for the inmate cash she kept for
personal use. Additionally, Ms. Martinez defaced the items by inscribing an
inmate’s name on the face of the money order, thereby making it appear like
other money orders that were intended for deposit in the inmate commissary
account.
• Using previously embezzled funds, Ms. Martinez purchased, fraudulently
completed, and deposited 18 money orders into the bond account in order to
pay some of the outstanding inmate bonds that she had used to cover her theft
of cash from the commissary deposit. She attempted to disguise the money
orders as the originals by copying an inmate’s original bond information onto the
money order as well as forging signatures on some of the money orders.
Office of the Auditor General
page 7
FINDING 2
State of Arizona
page 8
Sheriff’s Office Management failed to ensure
adequate controls
Management failed to implement an adequate system of internal controls for cash
receipts, cash disbursements, and recording activities relating to the bond and
inmate commissary accounts. In fact, the PCSO’s unsatisfactory segregation of
duties and insufficient oversight weakened their control environment and allowed Ms.
Martinez to control many aspects of the receipting and disbursement activities
sufficient to embezzle public money undetected for almost 2 years.
Specifically, the Pinal County Sheriff’s Office allowed Ms. Martinez to receive, record,
and deposit all bond and inmate commissary account funds. Additionally, Ms.
Martinez was responsible for preparing and signing checks, making the daily
deposits, adding and deleting information in the ledger accounting systems, and
reconciling bank information. At a minimum, cash-handling functions should be
separate from recordkeeping functions. Therefore, employees who receive cash
should not record cash collections into the PCSO ledger accounting system or
reconcile bank account information.
Further, management did not ensure the integrity of the bond or inmate commissary
accounting systems or the resultant accuracy of reports generated from those
systems. No controls were established to prohibit unauthorized changes or deletions
of information within the ledger accounting systems. The financial software used to
monitor the bond and inmate commissary accounts were insufficient as entries could
be deleted or changed retroactively to hide theft or other discrepancies. The software
offered some limited controls; however, they were not used.
Moreover, management failed to ensure that monies were deposited intact, meaning
that all money orders and cash receipts were deposited in their entirety. In addition,
management did not ensure that bond payment checks were issued appropriately
and within a timely manner after funds were received. Because of this, deposits and
bond issued checks were sometimes delayed anywhere from 3 to 41 days.
Office of the Auditor General
page 9
FINDING 3
State of Arizona
page 10
To help ensure proper control over and use of public monies, Pinal County Sheriff’s
Office management should establish effective internal controls over cash receipt and
disbursement activities, including policies, procedures, and monitoring activities.
Specifically, management should ensure that:
1. No single employee should control all aspects of money handling, such as
receipting, disbursement, and recordkeeping functions. Accordingly, the
following functions should be properly segregated:
• Receiving cash, money orders, and cashier’s checks.
• Recording cash receipts and disbursements in the bond and inmate
commissary accounting systems.
• Depositing cash receipts.
• Compiling supporting documentation and filing it with the PCSO.
• Issuing, voiding, and reissuing bond and inmate commissary account
checks.
• Reconciling deposits to the bond account cash receipt log.
• Reconciling information within the bond accounting system.
• Reconciling information within the inmate commissary financial accounting
system.
• Reconciling PCSO bond and inmate commissary accounts to bank
records.
These functions can be effectively separated among the various lieutenants,
sergeants, and detention officers within the Intake Department and Property
Room. Controls can further be strengthened by employing an appropriate
secondary independent review and approval process.
2. All deposits into the bond and inmate accounts should be made intact and on
a daily basis. Additionally, a corresponding bond payment court check should
be issued within 1 working day of receiving the bond funds.
3. A periodic update of a PCSO authorized bank account signers list should be
performed to ensure only the appropriate employees have check signing
authority.
Office of the Auditor General
RECOMMENDATIONS
page 11
4. Management should monitor the PCSO financial accounting systems and
perform monthly reconciliations of the inmate record management system to the
financial accounting systems to ensure:
• Inmate commissary account checks are not issued from inactive or
fraudulent inmate resident accounts.
• Inmate resident accounts are not erroneously or fraudulently opened and
closed.
5. Management should update the ledger accounting systems used to track bond
and inmate commissary account funds to include controls that prohibit deletion
of entries and retroactive alteration of entries.
6. Management should establish monitoring practices to ensure that all policies
and procedures are followed.
State of Arizona
page 12
On December 14, 2005, the Arizona Attorney General’s Office took criminal action
against Ms. Sylvia Martinez and her sister, Ms. Cynthia MacDonald, through the
Superior Court Grand Jury. This action resulted in the indictment of Ms. Martinez on
two counts of theft, and one count each of fraudulent schemes, misuse of public
money, and tampering. Ms. MacDonald was indicted on one count of theft.
Office of the Auditor General
CONCLUSION
page 13
State of Arizona