Categorized in: Fraud Local governments Washington state governments

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Published: August 30, 2021

The State Auditor’s Office received 410 reports of suspected or known loss in 2020. While some of these reports were from citizens and whistleblowers, more than 80 percent of reports came from management at state agencies and local governments.

That’s because state law (RCW 43.09.185) requires all state agencies and local governments to immediately notify SAO of any known or suspected loss of public resources or other illegal activity, including cyberattacks and other activities that potentially affect financial records or systems.

When you suspect or detect a loss, it can be stressful and challenging to figure out what steps you should take. SAO is here to guide you on how to handle potential losses; working together with our office will help you decide what steps to take, and hopefully, decrease the stress of the situation.

Below are some tips to follow if you find yourself dealing with a potential loss, and what you can expect from our office.

First things first: Protect all applicable records and file a report

You should immediately take steps to protect applicable records from loss or destruction. For example, you should secure backup copies of computer records and original paper records related to the situation in a vault, safe or locked cabinet until the investigation is complete. In addition to protecting records, start a timeline of all the steps you take, and report the potential loss to SAO.

SAO requests that you report any suspected losses through our online Report a Suspected Fraud or Loss form. The SAO website has guidance for what to include in your report. If you have questions about what to report, or would otherwise like to discuss a concern with someone at SAO, please contact the Special Investigations Team at fraud@sao.wa.gov or call (360) 688-0858.

When to notify law enforcement

For most situations, you will need to file a police report with local or state law enforcement. However, governments should immediately notify the appropriate local or state law enforcement agency when the suspected loss involves the health or safety of employees or property, or when losses are the result of breaking and entering or other vandalism of property.

If you have questions about the necessity or timing of a police report, please contact the Special Investigations Team at fraud@sao.wa.gov or call (360) 688-0858.

What to expect after reporting a suspected loss

Once you report a loss, you will receive an automated email confirmation with a case number. We will review the information you reported, and depending on the nature of the loss, we may need to contact you for additional information. If we determine a formal investigation is unnecessary, we will close the case and give the information to the audit team for consideration during the next audit. However, if an investigation is necessary, the process will fall into one of two investigation categories, which we explain below.

If SAO determines the situation requires more scrutiny, we will open an investigation. While we sometimes prefer to conduct the entire investigation ourselves, oftentimes you can choose who performs it. Here’s what you can expect from each type of investigation:

Internal/external investigations

These are investigations or reviews an external party conducts or your organization performs internally. External parties can include contracted investigator services, law enforcement, CPA firms or insurance agencies.

If SAO does not perform the investigation, we will still expect to be involved. Once the internal or external investigation is complete, our Office will ask for copy of the results and supporting records. We will review this information and evaluate the investigation’s scope and methodology, responsibility assigned for the loss, interviews and notes, and the total amount of public resources lost and supporting documentation. After our review, we may need to perform additional procedures, which we would communicate with you.

Finally, we will determine if the loss should be reported formally in a public report. If so, we will share a draft report with you prior to publication. You will have an opportunity to respond to the report, which we will include in the final report published on our website.

SAO investigation

SAO will be in charge of the investigation from start to finish. We will prepare an investigation plan and estimated budget for the work. We will communicate the estimated cost for the investigation based on our planned procedures. At the end of our investigation, we will determine if we need to issue a formal public report. We will share a draft report with you prior to publication, and we will include your response in the final report published on our website.

Advantages of SAO-issued investigation reports

SAO-issued investigation reports are helpful for prosecuting losses and recouping them. We refer our reports to the appropriate prosecuting offices for further consideration in recouping losses, including investigation costs.

Beyond that, law enforcement, insurance agencies, and other parties use our reports as tools for understanding losses that occurred and helping you recoup them. For example, insurance agencies will use the report to support the claim amount you submitted for reimbursement of the loss. This will often include investigation cost recovery for the agency or local government.

SAO involvement with restitution agreements

When state agencies and local governments are victims of misappropriation, seeking restitution from the responsible parties is an important step for making the government and its taxpayers whole again. However, state law requires local governments (RCW 43.09.260) and state agencies (RCW 43.09.330) to seek written approval from SAO and the Attorney General’s Office for restitution agreements that represent a “settlement or compromise” of the claim.

You should send your proposed agreements to SAO’s Special Investigations Team at fraud@sao.wa.gov.  The team will route the agreement to the appropriate approvers at both SAO and the Attorney General’s Office. Looking for additional information about the restitution process? Take a look at our article “How and when to seek SAO approval for a restitution agreement.”

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Categorized in: Fraud Local governments Washington state governments

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