Randolph County Clerk, Melinda Peed, has been cited by the Indiana State Auditors office for lack of internal controls after $21,173 in forged checks was discovered to be drawn from funds of the county’s account.
On August 12, 2020, The Indiana State Board of Accounts issued a Supplemental Compliance Report, for the time period of January 1, 2019 to December 31, 2019 to their original audit report in regards to fraudulent activity that occurred at the Randolph County Clerk’s office.
According to Peed, on 17 separate occasions, false checks were created by an unknown individual or individuals and cashed in El Paso, Texas. In September, 2 checks, both under $2000, in October, 10 checks, all under $2500 and in November, 5 checks, all under $1000 were issued to various individuals and signed with the same signature, not Peed’s signature, on all occurrences. The names that the checks were issued to have been researched and cannot be found in the system or have any ties at the Clerk’s office whatsoever.
When asked how she thought the fraudulent activity originated, Peed remarked, “I have no idea. I am not a dishonest person so I do not know how to go about doing something like this. I guess it’s easy to obtain the number of a checking account and have some checks made up and go from there.” When asked if she thought it was anyone internally in her office, Peed continued,”I do not believe any employee, past or present, of the Clerk’s office had any part in this issue.”
The discovery of the fraud came in December 2019 when Peed had resumed reconciling the county’s bank account after the procedure had not been completed in October and November. When asked why the procedure had ceased, Peed explained, “When I was appointed in January 2019, I inherited multiple issues in regards to the accounting in the Clerk’s office. Outstanding checks dated over the past 20 years, voided checks not processed in the system and non-balanced adjustments were just a few of the obstacles I faced when I took over the position. Couple that with minimal training of certain aspects of the job and this is the result.”
Working closely with the software provider to resolve some of these issues, the provider suggested that Peed cease in the reconciliation until the books and any other unresolved issues could be corrected. Peed, not knowing at the time that permission was needed from the State Board of Accounts to do this, complied and enacted the pause of the reconciliation. “I felt it very important to start basically from scratch and do the research and homework on these issues so that it would be completely resolved going forward,” remarked Peed.
Once I started the reconciliation process again, I noticed the discrepancy and I contacted the State immediately to make them aware of the situation,” Peed stated. Peed said she had also contacted members of both Randolph County Council and Randolph County Commissioners to make them aware of the situation.
Although the bank took responsibility and returned the total amount of $21,173, to the Clerk’s account after it was determined that the checks were in fact fraudulent, Peed states its a problem they did not catch the discrepancy themselves. When asked about the checks in questions and how they were cashed, Peed said the checks were cashed by a mobile deposit practice. This practice allows the customer to take a photo of the front and back of the check instead of actually going into a bank. “It is concerning that the local bank cashed and continued to fund the checks even though the signature on the checks was not mine and did not resemble the signature that is on file at the institution,” Peed stated. This has caused the office to seek and switch to a different financial institution going forward.
The report goes on to state that the Clerk was not reconciling the bank statement monthly and if the internal controls would have been followed the activity would have been detected in a more timely manner.
The Indiana State Board of Accounts is required under Indiana Code to define the acceptable minimum level of internal control standards. To Provide clarifying guidance, the State Examiner compiled the standards contained in the manual, Uniform Internal Control Standards for Indiana Political Subdivisions. All political subdivisions subject to the audit by the State Board of Accounts are expected to adhere to the standards. The standards include adequate control activities. According to this manual:
“Control activities are the actions and tools established through policies and procedures that help to detect, prevent or reduce the identified risks that interfere with the achievement of objectives. Detection activities are designed to identify unfavorable events in a timely manner whereas prevention activities are designed to deter the occurrence of an unfavorable event. Examples of these activities include reconciliations, authorizations, approval processes, performance reviews and verification processes.
An integral part of the control activity component is segregation of duties. There is an expectation of segregation of duties. If compensating controls are necessary, documentation should exist to identify both the areas where segregation of duties are not feasible or practical and the compensating controls implemented to mitigate the risk…”
Indiana Code 5-13-6-1(e) states: “All local investment officers shall reconcile at least monthly the balance of the public funds, as disclosed by the records of the local officers, with the balance statements provided by the respective depositories.”
The above code is where the State Board of Accounts has found fault and cited Peed for lack of reconciling the county bank account.
To try to eliminate any further fraudulent activity, Peed has implemented two new protocols. “We have enrolled in a free program offered by our new bank called “Postive Pay”. This check cashing process requires the Clerk’s office to review every check that is drawn from their account for accuracy and legitimacy. Peed and her staff do this practice daily to ensure that the checks written are in fact issued by the Clerk’s office. If found to be fraudulent the banks are notified and the two institutions deal with the situation between themselves.
Peed has also now implemented a transaction limit or guideline for any financial activity from the county funds. “This process will throw up red flags if items are presented to us and they exceed the limits we have put in place,” Peed stated.
The fraudulent activity is being investigated by Randolph County Sheriff Department and local and state authorities in Texas.