FARMINGTON -- A former treasurer for the Northwest Arkansas Education Service Cooperative, a cooperative which includes the Decatur, Gentry and Gravette School districts, wrote checks to herself and family members totaling $78,021 over a 17-year period, according to an audit report released last week during a superintendents meeting.
The potential theft was discovered in September during a routine annual audit of the organization's finances, said Cooperative Director Charles Cudney. The former employee, Dianne Parrish, was suspended from Sept. 9 to Sept. 30, when she retired. The superintendents act as the board for the cooperative, which provides services to school districts across Northwest Arkansas.
The results of the audit will be forwarded to the Farmington Police Department and the Washington County prosecutor, Cudney said.
Parrish referred questions to her attorney, Paul Reynolds. Reynolds, based in Fayetteville, said he hadn't yet seen the audit report but said he has told the Education Service Cooperative management he and Parrish will cooperate with them.
"I don't know what evidence is there," Reynolds said. "We're going to stand by that right to innocence until further notice."
Parrish began working for the cooperative Sept. 1, 1990, Cudney said. She announced in June her plans to retire Sept. 30.
The cooperative does audits each year, Cudney said. With Parrish nearing retirement, Cudney wanted the audit for the fiscal 2015 to be done before she left her position, he said. She had been in her position for more than 20 years and was training a new employee, he said.
Cudney wasn't aware of any financial issues prior to the audit, he said.
"The management team and board members of the Cooperative are shocked and saddened to learn that this breach of trust by a long-time employee has occurred," said a statement released Tuesday. "The cooperative is presently reviewing all financial record-keeping and audit procedures for any changes that may be necessary to ensure that no future losses occur."
The audit by Roger Griffin, a certified public accountant from Fayetteville, identified a need for the cooperative to establish procedures to prevent fraud.
From July 1, 2008, to Sept. 30, Parrish issued 95 unauthorized and undocumented checks to herself totaling $31,258, the audit states. She also wrote nine checks to her husband, Tony Parrish, totaling $5,540, and two checks to her son, Tony Parrish, amounting to $1,147, the audit states.
The checks were written for amounts below what an auditor typically looks for, Griffin said. None of the amounts were "glaring" until the end, he said. The review started with a sample of 25 checks. Three of the checks written to Parrish and her husband were unauthorized. Most of the activity reported in the audit was found looking document by document at checks written over the past seven years.
The cooperative has kept paper records for financial transactions for that time period, Cudney said.
The review also found computer records of older checks written to Parrish and three additional family members from July 1, 1998, to June 30, 1998, he said.
During that time period, 141 checks amounting to $40,076 were written to Parrish and her family members, however, all paper documents for that time period have been shredded per the cooperative's records retention policy, the audit states.
The audit found Parrish would write the checks manually, Griffin said in a presentation to the superintendents. She had an application on her computer allowing her to print checks from any computer. She also would go back into the financial system and change the name to a vendor or former employee, he said.
When Cudney became the cooperative director in July 2014, he thought the financial control systems provided standard internal controls for finances based on his experiences of being a superintendent in five school districts, he said. He didn't know why the theft wasn't discovered until this year.
The report described the state of the cooperative's financial records as "deplorable."
The audit found the management lacked adequate processes for discouraging "illegal, dishonest and unethical acts by employees," as well as for employing personnel with the level of competence for fulfilling financial accounting duties of the cooperative treasurer and for ensuring accurate financial accounting records were maintained.
Management of the cooperative also failed to segregate financial accounting duties, a common issue in audits of government organizations, Griffin said.
Organizations are at risk for fraud when one person has complete control of the financial system, such as writing checks, reconciling bank statements and adding vendors, Griffin said.
"Trust is the biggest error that we make," Griffin said. "Any time fraudulence is a part of your organization, it takes intent. If there's intent involved, dare I say, anybody can steal from you."
Actions taken in response include having Cudney monitor record-keeping activities on a daily basis, forbidding the use of signature stamps, and Cudney personally signing and approving all purchase orders, invoices, checks and manual journal entries, the report states.
The treasurer now prints checks, but another employee signs the checks, Cudney said.
Superintendents approved the audit report Tuesday. They voted unanimously for the state Legislative Audit to do the evaluation of the cooperative's finances for the cooperative's 2015-16 fiscal year, which ends June 30.
"This is something that has been detected," said Greenland Superintendent Larry Ben, who presided over the meeting. "There have been steps put in place to mitigate this in the future."
Cudney told superintendents he wanted the legislative audit to provide the highest level of scrutiny, he said.
"We need to send a message, 'Whatever it takes, we're an open book,'" he said.
"Trust is the biggest error that we make ... Any time fraudulence is apart of your organization, it takes intent. If there's intent involved, dare I say, anybody can steal from you."
-- Roger Griffin, accountant
General News on 12/09/2015