Exponential growth: A potential warning sign of fraud

The State Auditor’s Office creates and shares many resources to help local governments identify signs of fraud so that they can prevent losses and preserve taxpayer dollars. SAO has information about topics like reviewing bank statements for unusual activity, ensuring governments implement effective internal controls, and how to handle personal purchases using government credit cards.

One symptom of potential fraud can be exponential growth in spending, meaning costs increase steadily over time. Consider a small town that normally spends $500 on office supplies each month. What if, in three consecutive months, spending on office supplies doubled? That would be unusual – and costly – as the town’s spending in this area would now be $4000. In our fraud investigator’s experience, fraud schemes often start small as bad actors test their limits. If their initial efforts succeed, they often begin to increase the size and amount of the fraud.

This tactic of starting small and then spending big can cause real damage for local governments, many of which cannot afford to suffer such large losses. Because of these impacts, SAO has paid particular attention to exponential growth as a symptom of potential fraud. Here are some ways that focus has manifested recently:

• Vendor growth at the Department of Social and Health Services (DSHS): Using new data analysis tools, we found total vendor spending across DSHS increased by about 50% from 2021 to 2025. At the same time, about 1,000 of those vendors showed patterns of exponential or otherwise high spending growth. Because these patterns can represent areas of risk, we took a closer look at a selection of those payments. To the agency’s credit, the payments we reviewed were supported with adequate documentation and reasonable explanations, such as increased vendor billing rates. The primary factors driving spending growth are detailed in our vendor growth performance audit report (PDF).
• Town of Metaline: In April 2026, our Office published a fraud investigation report chronicling the town’s Clerk-Treasurer who misappropriated at least $223,000 over six years. The Clerk-Treasurer's activity began slowly, then continued to escalate as the misappropriations went undetected. For example, the Clerk-Treasurer’s debit and credit card misappropriations increased from about $30,000 in 2020 to about $55,000 in 2022. Read the full Town of Metaline fraud report here (PDF).
• Data analysis at SAO: Our Office’s data analyst periodically reviews the activity at Washington governments for anomalous spending patterns. Specifically, the Office’s data analysis tool aims to detect exponential spending and scan large datasets of state purchase card transactions. Read our press release about how this tool helped detect a nearly $900,000 misappropriation in 2024.

Remember: To spot warning signs like rapid spending growth, governments need effective internal controls. These best practice guides can help you establish or reinforce your local government’s checks and balances.

• Best practices for credit card programs (PDF) – Credit card programs vary in their nature and size, as does how governments use them—all of which affect the risk of misuse. These best practices can help local governments evaluate their credit card program and related internal controls.
• Expect the unexpected: how to protect unanticipated revenue from fraud (PDF) – This resource has best practices to help you evaluate your internal controls around unanticipated revenue, and how to improve them. It outlines common fraud tactics, and includes tips for detecting and preventing this type of fraud in your government.
• Best practices for bank reconciliations (PDF) – These best practices around the bank reconciliation process can help governments detect fraud and ensure their data and financial statements are accurate. It includes a template to document a global bank reconciliation for local governments.