July 17, 2011 - Tom Salmon, R-Auditor of Accounts, joins Anson Tebbetts and Jennifer Reading to discuss embezzlement and politics.
a good sun morning to you. I'm anson tebbetts and we're joined by one of the constitutional officers for the state of vermont, auditor tom salmon. Thank you for joining us.
Thanks for having me.
And helping us with the questioning today is jennifer reading, who covers legal issues for us, for the station. Jennifer?
Thank you. So mr. Salmon, thanks for joining us. One of the top picks is that a hot button issue right now is em-dez and it em-dezment and seems that every other week, there's on the case popping up, so what measures are you pushing for to stop these criminals?
In terms of measures, according to the association of certified fraud examiners, the best detection of fraud is to create the perception that people are being watched, so one of the initiatives we've purn is this two-page checklist with a certification so that anyone handling cash in an organization, public or private, knows that they're not the only one who understands the cold cycle of cash. We found across the state that a lot of these situations have occurred because somebody was given the opportunity to not only receive payments or open the mail or have control over the bank statements, but to then also then reconcile the bank statements, so we're trying to educate people. Educate, educate, educate, and even if need be, create a fraud prevention tool kit that employers and municipalities, school districts, can use to let the people handling cash know, hey, listen, it's not that we don't trust you, but we need internal controls that are being engaged not just by the people in the financial department, but other people, and other people on the board. So a lot of these non-profit boards started at a very small pure mission level and then they grew, but their financial controls over cash didn't grow at the same time. So it's really an exciting area and we're fortunate to have people like don keelland in southern vermont, a cpa working with us and we did a three-hour training with the league of cities and towns recently that had over 100 people. So people are really hot on this subject, plus we're working with the federal ig department as well as the fbi on doing this.
So you're saying that you're pushing this new tool kit. Right now as it stands, is it too easy for municipalities and small businesses to have folks steal from them?
Yeah. When we decided -- first of all, internal controls, which could be as simple as people who fill out a time sheet, can't just fill it out for whatever hours they want. It has to be verified by somebody, but if it wasn't, then anybody could write their own ticket, and so internal controls is not a new thing. Embezzlement is not a new thing, but the approach has to be different, so what we've tried to do and we brought in two actual confessed embezzlers, and the interesting thing listening to them speak is that they could tell within a couple weeks who they could steal from. People who literally gave them the opportunity, gave them the opportunity to write checks to themselves or to the same vendors, verizon, key bank, citizens bank, whatever, that the company may have or friends of theirs who are vendors, and you know, that trend in vermont is very serious because it speaks to this overreliance of trust. In vermont, we love vermont, we love our communities, and we love our state, and unfortunately over time, these areas have become big money businesses, really. Especially since school funding has brought so much money into the towns, the way that the statewide property tax has looped this circle, because what's happened is, in fact, the theft in ira would not have occurred if the guy couldn't have floated basically on delaying the school payment. Hardwick electric being able to delay the payment to the power authority, and one of the keys that we all have to remember is, in the fraud triangle, you basically have opportunity, rationalization and pressure, and vermont has given too many people an opportunity to steal for too long, and our goal in the office is not only to address the opportunity but to close it and teach people how to close it so they can do it on their own and it can become part of a culture, and it starts at the top. That's why we went to the legislature and said, listen, we want you to sign off on this initiative. It may sound basic, a two-page checklist. We already have an internal controls checklist on our website, used it hundreds of times in training, but this two-pager is modeled after the professional responsibility board, which is the attorneys in vermont. In fact, the supreme court a number of years ago got fed up with the stain on the profession by lawyers mishandling trustee accounts so they created this checklist with a certification and if an attorney signs that, they are committing a serious offense if they haven't confirm that they understand the controls that are in place and who reconciles and manages those accounts. So it creating this dual effect. One is, you've got somebody educated on the cash environment who maybe doesn't handle cash, but, two, you have somebody to point to who's responsible and in vermont, we have allowed this to go on for a long time.
And how does it begin? I think i read somewhere or was on our tv station where day one was, you know, looking over the shoulder, second time got easier, and by the third or fourth time, it was pretty routine. Is there any research on how it all begins? Is it just, i need a little cash and i got through the day and then, hey, this is pretty easy and i can get through it again in.
There's some research on the type of personalities, people who steal, and the people who are out to gain the system, the ones that we talk about earlier, the ones who go right into medical and healthcare because they want to steal, those people are the ones that commit the larger frauds. The ones that would be more casual frauds are the ones who become -- well, first of all, they notice that there's an opportunity and they have pressure, and as we heard from interviewing people, one example is imagine a town official who doesn't even have an office and as treasurer out of their house and they have a stack of bills over here by the toaster and somebody shows up at their door with a stack of cash to pay their property tax, and they have it over here by the napkins, and in their words, you know, good people get led to do bad things because you can easily hide that cash, float that receivable, play tricks with the books, if you're the only person who manages the finances. So, yeah, we did hear that as well, that the first dollar is the hardest to steal and they feel really bad about it, and we even asked them. Okay, we think fraud is going on right now in vermont, we absolutely do. Just natural. In fact, at the federal level, they say with healthcare fraud, they think it could be as high as a 10% error rate, which is billions of misappropriated money. So with the fraud situation -- i just lost my train of thought.
Well, if it's happening, is it part of it the economic situation that we're in now? It seems maybe we're reporting more cases, maybe more people are watching, but is the other angle because of the economic counsel turn we've had over -- downturn we've had over the last few years, more people are saying we need to get by and do this?
I think so. I think that's one pressure. One of the fraudsteres we interviewed, they just said i wasn't angry at the boss, which is one thing you will hear, i didn't feel underappreciated, i just fell behind on bills and i just started little by little paying bills. And we're in a horrific economic situation. In vermont, it feels like we have two types of vermonters developing, those who lost the money and those with no personal disposable income and that's a huge concern.
Interestingly enough, myself interviewing a lot of these victims of this type of crime, they don't buy the economy angle. They say these people are crooks and we're just catching more of them. Do you find that? I mean, and part of that, too, is that you have set up this program where you actually brought in convicted embezzlers and you could really get inside their heads. How helpful was that and are you seeing this other aspect that, you know, just more people getting caught in.
And i do -- i think it's a combination of events, both the pressure of the economy and in that environment where people never -- will say later, they never meant to steal, but they found themselves in an opportunity to do it and they had a bad day that rolled into. Yeah, there are people who say don't glorify the embezzler. You brought this person to your training event, you know, and where is that going to show? It's going to show that these are real people and when you hear some of them speak, you realize they started because they couldn't afford -- stealing because they personally couldn't afford four snow tires instead two of, and there was some human reason, some pressure that developed for them to do that. I do think that going forward and in soesh in general -- society in general, we have a society with an accountability problem right now, we just do, on all levels. Whether it's human health, management, educational outcomes for families and students, and if we don't -- the government isn't going to fix that lack of accountability, but it can certainly facilitate some behavioral change by explaining what the rules are. One of the things we're encouraging employers to do is to create the idea or you got to create this team culture in your organization, post something in your lunchroom saying that, dear team members, we take internal controls very seriously here, they matter to everyone. Lost resources, misappropriated resources are lost profits. If any embezzlements or misappropriations will be fully prosecuted by law, you know, a loss in resources or loss in profits is not just punishing the organization, it's punishing your co-workers. There was a fraud down in bell las falls, framing company. The person stole, i think three-quarters of a million dollars, made the whole place shut down. Everybody lost their jobs, so it's just a chain reaction. Tax revenues everywhere, customers upset, and i think that if you can make it more real to some of these people and you nail the ones you catch -- that's the other thing to your point. I spoke to the fuel dealers and normally with fuel, that's a pretty regulated, pretty calculated industry, keeping track of gallons, and yes you can play with receivables and things like that. You can take payments from mrs. Smith and not post them to mrs. Smith and pocket them and take the payment from mr. Jones and then payments to smith. But after i spoke to these people, they came up to me and they said, yeah, we've had -- we had a problem with an employee, they stole and they, you know, gave us the sob story and all the -- made us sympathize with them, and then guess what they did? We didn't nail them. They paid back a little and then they wandered off and then they're in the paper again, stealing from somebody else. So, yeah, there are people out there that need to be nailed if they do this one time.
Are the state laws tough enough to do that? I mean, we had one particular case working its way through the federal system because of the federal money involved here, but are the state laws strong enough as a deter wren or do we need -- deterrent or do we need legislation to go take a look at that?
I'm a prevention guy more than a punitive guy and i think that it can be a combination of both. After we did this work, we found that there's a huge amount of prevention work that could be done through the stuff that we're doing to make sure that everyone is being -- knows they're being watched and making somebody responsible for watching, but the other piece is if you ask don keeland from arlington who work on our committee, that he would say in his research, the penalties are too soft and it gets back to the society has an accountability problem. We have so many people get in trouble, but these people come along and they don't rate in a prison related to someone who's committed a more serious offense, and it's -- i don't know if it's a deterrent, but i know that -- because, in fact, one of the embezzlers we worked with went to one prison, federal, and then was going to make amends with people and i don't know if -- i don't think he stole again, but he didn't resolve his issue, so he had to go back again.
Do the non-profits, the employers, the towns, cities, do they ever get reimbursed? Are they ever made whole in any of these deals?
It depends, it depends how much is stolen. Currently the situation in hardwick where the person clearly stole more than the insurance policy, i think the insurance policy is $500,000 and the loss to the town is going to be probably equal that amount unless there's some recoupment somewhere else, so no, there's a -- there's payment plans and so forth, but it's unlikely.
Sit tough in these small -- is it tough in these small stouns for greater oversight than, say n a larger city like burling ston where there's maybe more checks and balances because there's more people? In covering the hardwick thing, it seemed very much, people saw the personal connection to the woman who was stealing.
Oh, yeah, the personal connection, you have someone who's worked there over 30 years and, you know, there's that cycle that has to change, but the question is, is that even smaller than hardwick are towns that tell us, we can't -- we cannot afford to pay somebody else to come in and reconcile the bank statements. We just -- we're just not going to do that and we say get a volunteer. Get somebody from the community who has financial skill, who can come in once a month and reconcile these. Even twice a month or i mean even every other month because then you could have that person kind of spot check. One of the embezzlers the other day at the training had said if you have a business and you have a bookkeeper, let's say they work on quick books, and you come in on a saturday and you just go in and look at some payment, doesn't matter, it could be for anything, and check number 1627, and you leave a little sticky note next to the computer saying, what about check number 1627? You know, what's that for? The fact that you just raised the light beam on the situation, you've done yourself a world of good to prevent that person, even if they're fully honest and not going to be a thief, that there is this level even in a small organization of a double-check, of a spotcheck, of a surprise check. There was somebody who just by accident opened up the bank statements and that's how one guy got caught, because he never let the owner open the bank statements, he just basically, you know, didn't -- just made him feel like he didn't have to. I'll take care of that. And he opened it up and saw a check that was inappropriate either to the person themselves or to the vendor.
We're talking about state auditor tom salmon and we're going to take a short break and talk about a few other welcome back to "you can quote me." we've been talking with tom salmon, the state auditor. Just to wrap up the embezzlement discussion here. If someone suspects that someone is embezzling, where do they go? Who do they turn to?
Well, if an organization can have a designated compliance manager, even that point person in the organization, they should go to them in their company, but if somebody is suspecting this in their organization and it's a -- and they receive state funds, and even if they're a non-profit receiving grants and not part of the state government, they can contact our office. We have a whistle-blowers hotline that they can anonymously report a tip that we'll refer or follow up on ourselves and that's simply by going to auditor.vermont.gov and it's useful.
Mentioned briefly talking about healthcare, who's watching all the money that's being spent on healthcare? Is that a responsibility of the auditor? I mean, we have millions of dollars in medicaid, medicare, and so frt. Is that something that you are working on?
The single audit audits medicaid every year because it's such a high-risk program by the federal government of all the federal programs, but because of that, because vermont spends between federal and state dollars over $1.3 billion in medicaid, it's a huge part of our $5 billion budget and it needs a supralook. Even though the -- an extra look. Even though the attorney general has their piece and ahs has their piece, so we've done projects related to medicaid, my predecessor did one on pharmacy and doctors and hospitals and we're doing one and looking at provider payments. Are we as a state paying providers, and that can be transportation, durable medical equipment, doctors, dentists, and others, are we paying people who are properly licensed, who are existing and doing business here? And also are they alive? We checked the death file to make sure. That would be embarrassing if we paid people who aren't alive, and so using data mining and other techniques, we're able to get samples and do that match and then we're also looking in the future to see if anybody who's paid through medicaid owes vermont state taxes, and most of the payment systems in vermont have an offset where if you're a vendor, you're not going to be paid if you owe the state money. So that's one interesting project that's coming up.
Mr. Salmon, what it sounds like you're saying on a few different pronts here in -- fronts here in vermont, the state could use some more oversight.
The state could use some more oversight. We're a very small office. We have a budget of about $4 million. In a $5 billion enterprise, that, as you know, less than one-tenth of one percent, so we would like to see over time a stronger augmentation of oversight. I think the examples have been proven across the state that we need more watchers and whether it's odd torz who are -- auditors who are state employees or the ability for our office to contract with vermont cpa firms and go out and do some of these spot checks, they don't have to be a full-blown audit, but a surprise check on the controls over cash would be very, very useful, and i plan on asking the legislature for that focused investment next year, despite the situation that we lost a position this year through the budget cuts, but it's important. Vermont, i think, the behind the curve in investing in oversight.
Any sense on the kind of support you may get from lawmakers on this initiative?
Well, lawmakers always, like when we brought this initiative to them, they voted ten to nothing in their commit teerk at least a show of hands, in favor of the ability for the auditor to require, if i send out a checklist that wants a certification, they supported that. However, because of other prioritiesy sies and politics, that ask, that law change, even though is was all written up within a week in march, never became law, so they have given me some assurances that they're going to pick it up again next year, but it was disappointing because when you're preventing fraud, you want the tone at the top set. You basically want people bought in at the top, but i'm confident that they will see the merits of it.
And when you're deciding what you can do in your office, you've got to make priorities, you chose embezzlement as one of your priorities. What's been left behind that you would like to do? You can't do out that they're that you think would benefit vermonters.
When i was a select board member in rockingham and i think this is where i was going before was, we had a horrible audit with all kinds of problems. There was no theft, but there could have been, and i felt like -- and the reason i ran for auditor was there was no attention paid on this open opportunity at both the school and the state level. The school and the municipal level, so although we've done some education projects, we find that the area of education, not only just fiscal management and oversight, is really, really weak in vermont. So we would exercise the option to do more educated related areas because think of -- you have got the 1.5, $1.6 billion area of education, the 1.3 medicaid and you've got just a huge amount of money dedicated to medication, education, and incarceration, so if we don't focus on that, we haven't done our job to better serve vermonters, and you know, that was my pledge coming in and i feel like we have a solid, competent staff, a really strong structure to go forward.
Let's talk politics just for a few moments here. You're considering a run for u.s. Senate, maybe governor. Where are you in your decision-making process about running for another office?
Well, i'm either going to run for another office or i'm going to move on into another challenging field. I mean, i'm a guy that, you know, that's been mt. Military -- in the military over ten years, i was in the inner city classroom for over ten years- years. I've gotten this office into a mace where i could literally hand it over to somebody and they couldn't screw it up, they shouldn't be able to screw it up, but i'm finding there's a little of a glass ceiling at the auditor's office. Some of my ideas, innovations, are really more policy driven, so in terms of timing, i think there's a couple of republicans in front of me deciding whether or not they're going to run for governor and then the situation with bernie sanders, or senator sanders is more remote than it was last time, but it's not out of question. It's a maybe. I think what you will see is with republicans in vermont, there's not a lot of us, so you got to be strategic, but in many ways, we're interested in team goals instead of individual goals. You won't see us all tripping over each other to get the brass ring because it's more about where can we be successful and make a difference.
And why is it more remote now challenging senator sanners than it was -- sanners than it was, say, maybe three or four months ago or six months ago?
It's more remote now because of a couple of things. One is the level of support in vermont that i received during my exploratory campaign was very limited. In fact, you know, people thought i was absolutely off the reservation to consider that, and i is said, listen, walt disney would wait until ten people said his idea was no good and he would properly begin work on it. In 2006, not many people thought i had a chance, especially with a progressive in the race. It's more remote because it would be, it would be a very daunting task, but again, i'm not afraid of it or the issues around it. I feel like our federal government and our state government has really headed in the wrong direction.
And just, you had mentioned a glass ceiling at the auditor's office and some of your ideas are policy driven. If if you were to run for senator, what of some of those policy changes you're considering?
Well, in recent months, i was named to be part of the president obama's administrative flexibility working group. It's a group that includes federal and state folks and i'm one of three from the states. And it's dedicated to finding ways to be more strategic with federal investments at home and also ways that we can improve outcomes, and since our office has been all about performance measurement, we were significantly involved in bringing a contractor to task to the state, and i feel one of my initiatives would be that each state would have an office of planning, priority, and performance that would be linked, not only to the other states, but to the federal government in a strategic way, unlike some of the things we've seen where money comes here but we still have a state hospital, we still have a circ highway and unresolved issues and that would be a way to really improve communication between federal and state, which is what i tried to do between local and state. That would be one of my priorities if i ran.
We have to cut it short here. Thank you so much for joining us on this edition of "you can quote me." tom salmon, auditor of account, you can reach him at his office in montpelier and also thanks to jennifer for the questioning. That's going to do it for this edition. Aim anson tebbetts. -- i'm about. Good day. Bush push i'm anson tebbetts, good day. Captioning provided by. Caption associates, llc www.captionassociates.com