09-01-2015 Fraud Investigation ReportCity Clerk
Washington State Auditor's Office
Fraud Investigation Report
City of Federal Way
King County
Investigation Period
July 1, 2011 through September 30, 2013
Issue Date
September 22, 2014
Report No. 1012620
Washington State Auditor
Troy Kelley
Independence • Respect • Integrity
Washington State Auditor
Troy Kelley
September 22, 2014
Mayor and City Council
City of Federal Way
Federal Way, Washington
Report on Fraud Investigation
Attached is the official report on a misappropriation at the City of Federal Way. On
September 27, 2013, the City notified the State Auditor's Office of a potential loss of public
funds. This notification was submitted to us under the provisions of state law (RCW 43.09.185).
This report contains the results of our investigation of the former Office Technician's
unallowable activities at the City from July 1, 2011 through September 30, 2013. The purpose of
our investigation was to determine if a misappropriation had occurred.
Our investigation was performed under the authority of state law (RCW 43.09.260) and included
procedures we considered necessary under the circumstances.
Questions about this report should be directed to Sarah Walker, Fraud Manager, at
(509) 454 -3621.
7 y u /4_/(L,-/
TROY KELLEY
STATE AUDITOR
cc: Mr. Ade' Ariwoola, Finance Director
Insurance Building, P.O. Box 40021 • Olympia, Washington 98504 -0021 • (360) 902 -0370 • TDD Relay (800) 833 -6388
Fraud Investigation Report
City of Federal Way
King County
July 1, 2011 through September 30, 2013
INVESTIGATION SUMMARY
In September 2013, the Finance Director notified our Office regarding a potential loss of
public funds, as required by state law.
The City initiated an investigation and determined cash receipts were misappropriated at
the City's Community Center. The investigation identified a loss totaling $14,491
between July 2011 and September 2013.
The City has filed a report with Federal Way Police Department, which is investigating
this case. The King County Prosecuting Attorney's Office was notified of this case and
charges have been filed.
BACKGROUND AND INVESTIGATION RESULTS
The City, located in King County, operated on an annual general fund budget of
approximately $44 million in fiscal year 2013, including approximately $500,000 in
revenues for the Community Center. The City's Community Center features three gyms,
two pools, fitness area, climbing wall, senior lounge, sauna/steam room and rental space.
The facility also holds general recreation classes and community events. There were two
office technicians and up to four part-time desk clerks that collected membership, usage,
and classroom fees.
The City's investigation found an office technician, working as a cashier at the
Community Center, was cancelling valid cash receipting transactions and taking the cash.
The City's investigation focused on cash receipts associated with usage fees at the
Community Center. Each user had an assigned log -in ID and there was a temporary login
code available for when training part-time staff. The investigation focused on the user
ID's of the office technician and the temporary user. A summary, which identified a
minimum of three cancelled transactions occurring within minutes of each other, was
used to determine the amount of the loss. Based on the City's investigation, the loss
occurred over a three -year period by the user as follows:
2011 2012 2013 Total Loss
Temp Login ID 2,806.00 2,136.00 4,942.00
Assigned ID 159.00 2,480.00 6,910.00 9,549.00
Total $159.00 $5,286.00 $9,046.00 $14,491.00
Washington State Auditor's Office
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We reviewed the City's investigation of the Community Center loss and agreed with the
results. The City considered other systems the office technician had access to and did not
find additional misappropriation.
In the fall of 2013, the Federal Way Police Department interviewed the former office
technician and she took responsibility for the misappropriation.
CONTROL WEAKNESSES
Internal controls at the City were not adequate to safeguard public resources. We found
the following weaknesses allowed the misappropriation to occur:
• Lack of appropriate supervisory review of cancelled transactions, which allowed
this activity to go undetected.
• The system allowed for the usage of a temporary user ID, this ID was used
without monitoring.
RECOMMENDATION
We recommend the City strengthen internal controls over cash receipting and cancelled
transactions to ensure adequate oversight and monitoring to safeguard public resources
and compliance with City policies.
We also recommend the City seek recovery of the misappropriated $14,491 and related
investigation costs of $1,670 from the former office technician and/or its insurance
bonding company, as appropriate. Any compromise or settlement of this claim by the
City must be approved in writing by the Attorney General and State Auditor as directed
by state law (RCW 43.09.260). Assistant Attorney General Matt Kernutt is the contact
person for the Attorney General's Office and can be reached at (360) 586 -0740 or
mattkl @atg.wa.gov. The contact for the State Auditor's Office is Sadie Armijo, Deputy
Director of Local Audit, who can be reached at (360) 676 -2165 ext. 108 or
Sadie.Armijo @sao.wa.gov.
CITY'S RESPONSE
We thank the State Auditor's Office staff that worked on the investigation and appreciate
their thorough review of the City's investigation and conclusion. It was part of the
Internal Control in place that allowed the city employee to uncover the theft. Since then,
we have strengthened our internal control to prevent a situation like this from
reoccurring and furthermore, we will be able to detect any losses quickly. The following
are some of the changes we have made to our loss prevention policy:
• All refunds will be made at the Finance Department in the City Hall with
appropriate documentation.
• Discontinued the use of generic log -in and passwords.
Washington State Auditor's Office
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• Enhanced the Supervisory control and enhanced the membership check.
• Regularly reconcile with program instructors.
STATE AUDITOR'S OFFICE REMARKS
We thank City officials and personnel for their assistance and cooperation during the
investigation.
Washington State Auditor's Office
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ABOUT THE STATE AUDITOR'S OFFICE
The State Auditor's Office is established in the state's Constitution and is part of the executive
branch of state government. The State Auditor is elected by the citizens of Washington and
serves four -year terms.
We work with our audit clients and citizens as an advocate for government accountability. As an
elected agency, the State Auditor's Office has the independence necessary to objectively perform
audits and investigations. Our audits are designed to comply with professional standards as well
as to satisfy the requirements of federal, state, and local laws.
The State Auditor's Office employees are located around the state to deliver services effectively
and efficiently.
Our audits look at financial information and compliance with state, federal and local laws on the
part of all local governments, including schools, and all state agencies, including institutions of
higher education. In addition, we conduct performance audits of state agencies and local
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The results of our work are widely distributed through a variety of reports, which are available
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We take our role as partners in accountability seriously. We provide training and technical
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State Auditor
Chief of Staff
Director of Performance and State Audit
Director of Local Audit
Deputy Director of State Audit
Deputy Director of Local Audit
Deputy Director of Local Audit
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Public Records Officer
Main number
Toll -free Citizen Hotline
Website
www.sao.wa.gov
Troy Kelley
Doug Cochran
Chuck Pfeil, CPA
Kelly Collins, CPA
Jan M. Jutte, CPA, CGFM
Sadie Armijo
Mark Rapozo, CPA
Lou Adams, CPA
Barb Hinton
Thomas Shapley
Mary Leider
(360) 902 -0370
(866) 902 -3900
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