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The challenges facing the public sector are enormous:
- soaring demand for services
- rising demographic pressures
- the increasing cost of security
- ageing infrastructure
- the continuing climate of austerity
All have squeezed budgets as never before. Also, with money so tight, society’s tolerance of corruption in its government is at an all-time low. Municipal fraud by elected officials or public employees is an everyday reality — not only in developing countries — but also in Canada and the United States.
Read the press clippings below — fraud can occur in any municipality and by well-respected employees who have worked in the city for a long time. Prevention is the best defence to avoid having a similar story in your community.
What are the social costs of a loss of public confidence by taxpayers in their own government?
Using artificial intelligence and machine learning to prevent fraud in your community
Using our financial analytics and risk assessment service is good insurance to prevent reputation harm to your municipality. Anomalies occur in financial transactions. Understanding, early detection, and correction of irregularities in financial reporting are critical to having the right data for managing operations, decision-making and protecting your reputation.
It is sad to say that the rate of fraud is increasing. The length of time to detect fraud is also increasing. In almost every measurable way, rules-based systems and data sampling are losing this battle. External auditors only identify 4% of fraud cases. Smart people will figure out a way around rules. In fact, the higher the education level of the perpetrators, the higher the loss the organization suffers.
We have a better approach using the MindBridge Ai Auditor. It creates financial analytics through artificial intelligence and machine learning.
We have made the service affordable for all municipalities.
- for small and mid-sized towns — we have a financial health check-up service
- for large cities — we equip your internal audit function with advanced tools
Using our service changes the culture, as the staff knows that every anomaly will be identified. Financial information quality, reliability, and accuracy all improve. The temptation to commit fraud reduces as the likelihood of getting caught has increased significantly. No one wants a fraud scandal. Prevention is the best way to avoid having one.
Fraud can occur any any municipality — big or small
Former Halton public works manager charged with fraud
April 13, 2017 — Nicole O'Reilly, Hamilton Spectator
Halton Region's former public works manager, his wife and a Hamilton contractor are facing fraud charges over an alleged scheme that police say included laundering money through municipal contracts.
The $770,000 fraud began in 2008 and included falsely billing the region through contracts to Hamilton-based Sirron Systems Inc., Halton police allege. The company administers software that monitors and runs water plants.
Det. Sgt. Chris Lawson called it a "rather elaborate scheme," that involved billings sent to the region for supplies or labour that were fake.
Nancy Tonkin blames 'stupidity and greed' for theft of $854,000 from South Whitehall
April 8, 2015 — Laurie Mason Schroeder, The Morning Call
Nancy Tonkin burst into tears as she stood before a Lehigh County judge Wednesday, saying she could not explain how she stole $854,000 from South Whitehall residents while employed as the township's utility manager.
"The only two words I can say to describe it are stupidity and greed," she said. "I have no excuse." Tonkin, 67, was then handcuffed and led, hobbling on her prosthetic ankle, out of the courtroom to begin serving a two- to seven-year state prison sentence.
The prison term was part of a plea deal that allowed her husband, former South Whitehall police officer William Tonkin, 70, to remain free.
How the Largest Municipal Fraud in U.S. History was Committed
October 23, 2014 — Nancy Mathieson*, WP Original
So, maybe you live in a city like Dixon, Illinois, population 16,000 where everyone knows everyone, people are polite, work hard, and they don’t ask their neighbours too many questions.
In 2012, the mayor, everyone else in the city and the national media discovered that Rita Crundwell, the city’s Treasurer and Controller had embezzled $53.7 million from the city over the past 20 years. How could the treasurer of an Illinois town with an annual budget of $6 million to $8 million steals over $50 million in two decades? Here is the toolkit for municipal fraud, as described by attorney Devon C. Bruce, who litigated the Dixon civil case and obtained the largest municipal settlement of its kind, $47 million.
Ex-Nova Scotia municipal staffer accused of fraud: RCMP
September 23, 2014 — Carol Morris-Underhill, Hants Journal
The former chief administrative officer of West Hants, N.S., is charged with fraud after staff noticed questionable financial records last year, police say.
Officials alerted the Mounties and they launched a nine-month investigation that led to the arrest of Cheryl Chislett, 55, of Martock on Tuesday. Chislett is accused of fraud over $5,000 and breach of public trust. She was released with a promise to appear in court April 28.
Auditors found what they consider inappropriate charges of $11,315 and another $9,931 paid to Chislett for vacation time. She resigned from her position in September and promised to repay the municipality $11,275. Chislett was hired as the chief administrative officer in 2009 after she had served 12 years as an administrative assistant at the municipal office.
Fraud happens in large cities and small towns
What is shocking is that these frauds went undetected for years. These municipalities had annual audits sampling techniques are no longer sufficient — you need to examine 100% of the transactions every year or more frequently. Our service uses artificial intelligence and machine learning. We look at every transaction in 21 different ways!
How would you feel if you lived in Dixon, Illinois and found out that $600/year for the last 20 years of tax dollars just went into the pocket of a municipal employee? For less than a single citizen’s tax loss — Dixon could have run our service for seven years and saved taxpayers over $50 million in taxes. If West Hans Nova Scotia had used our service, would Cheryl Chislett be tempted to take $20,000 from the municipality?
Risk Management
Public sector risk management, risk decisions, and organizational cultures are complex processes and systems. Research shows that two factors increase the likelihood that an individual may commit fraud.
- The opportunity exists.
- They feel there is a very high likelihood they can get away with it.
Despite this internal audit at many municipalities have few resources.
There is a general lack of understanding and support for internal audit on the part of officials, media, and citizens. Moreover, some perceive internal audit as a threat or an unnecessary bureaucratic burden. Misunderstandings and misrepresentations about an internal audit's mandate, function, and value continue to persist.
The capability for a municipality to manage their risk begins with recognizing and identifying it. Each city should carefully consider critical risks and the means to mitigate them.
Predict and prevent
All municipalities have financial transactions. Through our financial compliance analytics, municipal governments can identify all anomalies in general ledger transactions. We do this through artificial intelligence and machine learning. Going beyond internal control and examining every transaction prevents specific problems:
- Employees know that all anomalies show up — records get better with fewer errors
- Reduce fraud — increase the likelihood of getting caught reduces the temptation
Municipal councillors can provide a much higher level of assurance to taxpayers that the books are in great shape.
In 2013, Elizabeth Anderson, University of British Columbia, published the Municipal Best Practices - Preventing Fraud, Bribery and Corruption . She strongly advocates for the use of tools to prevent fraud and corruption in municipal governments. Her report was based on practices used in Canada, US, UK, Australia and the EU.
Advanced analytics to find anomalies will help you reduce or eliminate fraud and corruption. Be among the first municipalities to use artificial intelligence and machine learning as part of your risk management approach.
Insights — Municipal Fraud
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FAQ — Municipal Fraud
How does MindBridge Ai™ increase auditor assurance?
The number of accounting scandals is amazing. Most result in re-stating the accounts and some in major scandals. The issue of regulatory oversight is frequently in the press. However, even with enforcement increasing and getting penalties higher, a new accounting issue is never far behind. It continues to get worse. Just look at the impact on British Telecom’s stock because of the irregularities found in accounting in their Italian division (read about it here).
At MindBridge Ai focuses on solving one of the massive issues underlying these scandals. We are building an expert system to help both internal and external auditors. This provides us with higher levels of assurance about the financial statements they are sworn to certify.
And the baseline issue we are dealing with is the amount of financial data they need to consume. There has always been too much of it.
Big Data
With Big Data, auditors are asked to “go fishing in a murky lake” and find accounting anomalies and irregularities for further review. Accountants and regulators agree to use statistical account sampling. Yet, the quality of the sample can only be measured after it has been sampled and analyzed. With the time pressure on providing audited results, if an irregularity or anomaly is found, the process has to start again. Moreover, this leads to costly re-statements which impact shareholder value and confidence in the audit firms.
Auditor Assurance
To solve this, Mindbridge Ai leverages machine learning AI to provide auditors with a more highly justifiable sample before the audit begins. Our Ai Auditor service ingests and analyzes the entire leger. We pinpoint areas they should be investigating early on with a higher degree of justification against the standard, and currently accepted sampling techniques. This gives auditors a higher assurance rate. It helps them improve upon the current approaches that only meet the standard, and not move past it. This moves towards the answers we, the press and firms like British Telecom need.
What is the MindBridge Ai Auditor?
MindBridge Ai Auditor is a revolutionary approach to analyze financial transactions to detect anomalies - unintentional and intentional - by automating manual processes and providing a risk-based assessment to help organizations ensure compliance and minimize their exposure to financial loss and liability.
Key Benefits:
MindBridge AI Auditor - Enhancing Profesional Judgement
The MindBridge AI Auditor is bridging the gap between human and artificial intelligence (AI) by enhancing professional judgment across multiple industries. Recent advancements in artificial intelligence have enabled a new class of converged analytics to analyze financial transaction flows and better detect anomalies - unintentional mistakes/errors and intentional.
Using algorithms based on data science, MindBridge generates actionable insights through an interactive, user-friendly visual interface to help organizations minimize risk exposure to the financial loss while supporting audit professionals to meet and exceed regulatory and industry standards. The MindBridge application has been tested by industry leading professionals and is proven to detect unusual human activities and transactions that incumbent systems cannot.
Financial Transactions Analysis, Evolved
The tools currently used to analyze financial transactions are not keeping pace with the needs of today’s auditor and investigator professionals. Existing computer-assisted audit tools are often time-consuming to use and do not provide the insights and analytics required to help effectively advise auditors or develop a comprehensive financial analysis. MindBridge offers intelligent audit technology to help increase the speed and accuracy of every audit and investigation.
Comprehensive analysis for accurate audits
Current audit and investigative techniques are limited by time and tools, restricting the financial analysis to random sampling and data filtering. What if you could review every financial transaction in the general ledger from every entry across every department?
With MindBridge there is no data set too large, meaning the system is capable of reviewing 100% of the data provided and calculating a risk score for every process or person that interacts with corporate data. This is how you can find more instances of financial misstatements suspicious financial discrepancies.
Intelligent anomaly detection to help you:
- Uncover more misstatements & potential fraud by reviewing 100% of corporate data
- Know where to look due to intelligent risk-scores
- Smarter control points that combine best practices and data science
- An intelligent system leveraging machine learning that adapts to your needs
Take financial audit efficiency to the next level
Automation is key to maximizing the effectiveness of each financial audit or review your organization performs. By removing manual processes, it is possible to streamline time-consuming activities, which frees up team members to use their expertise more effectively.
MindBridge’s Ai Auditor helps you be more efficient by offering:
- Smart data ingestion of your financial records saves you time importing and shaping data files
- Automated risk-scoring is based on a blend of control points and anomaly detection algorithms to help guide you to entries that appear suspicious
- Automated insights recommend similar items to look at and which steps to take next
Risk-based scoring
An unbiased analysis of each transaction history based on numerous control points and data science algorithms.
Accessibility
For maximum impact, the system is intuitive requiring little to no training meaning it can be used by anyone for the most basic of investigations, audits and all the way up to a forensic examination.
Intuitive dashboard
A visual summary of all transaction data and risk scores so that each auditor and investigator can determine where to focus instead of using sampling techniques alone.
Better Meet Audit Standards
- Leveraging Artificial Intelligence to meet and exceed standards including:
- SAS 99 Fraud in a Financial Statement Audit
- IAS 240 / CAS 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements
- Know where to look due to intelligent risk-scores
Automatically assigns a risk score to all transactions to focus audit, 100% coverage of all transactions.
System Requirements:
Intacct Web Services, modern web-browser (Chrome or Firefox are preferable)
Price: contact: kim.allen@allenvisioninc.com
What are some types of misconduct that are considered as municipal corruption?
One of the perhaps the most obvious and yet still most consistently recurring municipal corruption related problems for local governments is conflicts of interest, possibly due to the many and varied circumstances in which such conflicts may arise. The prevalence of this type of corruption is demonstrated by the amount of legal authority and case-law available on the topic.
Bribery
- the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or other person in charge of a public or legal duty
- taking money to give people preferential treatment. identified areas of concern include bribes from developers in permitting process, payback for zoning decisions, equipment contracts, or service contracts, bribery of building inspectors to obtain permits, bribery of elected officials for development variances and approvals, bribery of planning staff to obtain recommendations for development approvals
- may take the form of inappropriate gifts/sponsorship such as hockey tickets and other gifts for politicians and/or staff
Nepotism /Cronyism
- cronyism may include awarding contracts to people affiliated with the municipality or corrupt official, patronage appointments based on connections rather than qualifications, awarding contracts at inflated prices
- nepotism may include such issues as favoring family members in municipal hirings, zoning regulation changes based on friendships among colleagues rather than disinterested analysis
Embezzlement
- misappropriation of money or resources under a local government official or employee’s control
Fraud
- making false claims for benefits in order to abuse systems such as social security
Extortion
- occurs when a public official forces someone to give them benefits in exchange for acting/ not acting in a particular way, or when an external actor does the same to a public official
Conflicts of Interest
- a personal interest in a matter that goes beyond the interests of other members of the community, and might reasonably be expected to influence the elected official’s performance of his or her duties e.g., close links between developers and city staff, campaign contributions from developers, conflict in contract awards, personal interest in administrative decisions
Breach of Duty
- local government officials and employees ignoring applicable municipal legislation, e.g. sale of municipal assets for less than market value
Misuse of Authority
- lack of transparency/democratic concerns such as inappropriate use of in-camera meetings, non-public altering of official records, dishonesty concerning legislative options
- fraudulent use of expense accounts such as reimbursing inappropriate expenses, double expensing – influence on independent third party bodies, such as boards, which are intended to be at arm’s length
Criminal Activity
- including organized crime, internal theft/fraud, petty theft/fraud
source: Municipal “Best Practices”: Preventing Fraud, Bribery and Corruption – Elizabeth Anderson
Featured Downloads
FINANCIAL
- Demystifying AI
- Financial Statement Fraud — Case study
- How a CFO Landed in Prison
- MindBridge — Financial Audits, Evolved
- MindBridge Ai Auditor v2.0 Overview
- MindBridge Ai-Auditor Journal Entry Testing CAS 240
- MindBridge Ai-Auditor Journal Entry Testing CAS 240
- Municipal Best Practices - Preventing Fraud, Bribery and Corruption
