Do you ever wonder why government officials steal taxpayer money? Like the former employee of the Pulaski County Sheriff's Office who stole over $40,000 from the department? Or the two employees at the state Department of Human Services who were involved in a fraud scheme to defraud taxpayers of over $12 million meant to feed at-risk children?
A well-known American sociologist and criminologist, Donald Cressey, developed a theory known as the "fraud triangle." It states that three elements must be present for occupational fraud to occur--pressure to commit fraud, rationalization by the perpetrator, and an opportunity to commit fraud.
All three are important. The first two are probably out of control of the government, but the third is not.
Occupational fraud thrives on the lack of accountability and transparency. Internal controls such as segregation of duties reduce opportunities for employees to commit fraud. No one employee should have the sole authority to initiate a transaction, authorize or approve a transaction, and complete the transaction without appropriate sign-off processes and differing levels of management approval.
The Pulaski County Sheriff's Office and the Department of Human Services should be applauded for detecting these cases, albeit after five years and three years, respectively. The most worrisome thing, however, is the undetected occupational fraud taking place at all levels of government.
In its "Report to the Nations," the Association of Certified Fraud Examiners calculated that in the U.S., the median loss per case that is reported to them is $194,000 at the federal level, $100,000 at state level and $80,000 at local level. That is a lot of lost taxpayer money!
Aside from the financial loss, public-sector fraud erodes public trust in political institutions. Its economic impact is also well-documented. Research published in journals such as The Quarterly Journal of Economics shows that corruption distorts the allocation of resources and undermines competition in the marketplace. It also imposes a disproportionately high price on the poor by denying them access to vital basic services. The $40,000 stolen from the sheriff's office could have been used for other activities at the office such as investigating complaints and resolving disputes. It could also mean $40,000 tax relief for taxpayers.
When voters elect public officials, they are entrusting them to be good stewards of the public resources and not to enrich themselves. Voters should require that all levels of government be transparent. Financial information detailing the use of their hard-earned tax dollars needs to be easily accessible to all voters. Research published in the Public Administration Review shows that transparency improves financial management by making fraud easier to find.
Arkansas has made strides in improving the state's financial transparency. Most notably, the 2011 General Assembly passed Act 303, which requires the Department of Finance and Administration to publish the state's financial information online at transparency.Arkansas.gov. Making the state's financial information easily accessible to the public was a great step toward encouraging public officials to be fiscally responsible.
Despite the progress, there is still room for improvement. For one, the state could require that local governments also make their financial information available online. Arkansas' current laws only require county governments to publish their financial reports once per year in the newspaper with the largest circulation in the county.
One obvious weakness is that any citizen who wanted to go back and check the financial information would spend hours digging through old newspapers before she could analyze the spending. Governments already use digital technology for their own internal auditing. They should be able to give that information to voters too.
Transparency is prudent good governance. Not only does it build trust between the state and voters, it also encourages prudent stewardship of taxpayers' money. Arkansans deserve transparent governments be it at state or local level. Why not start with the Legislature changing the law to require local governments to publish their financial information on their websites or through transparency.Arkansas.gov?
Mavuto Kalulu is a research associate at the Arkansas Center for Research in Economics (ACRE) at the University of Central Arkansas in Conway. Ashley Phillips is an assistant professor of accounting at UCA.
Editorial on 06/23/2017