Auditors find nearly $900,000 misappropriation at Office of Administrative Hearings

A Washington state employee misappropriated nearly $900,000 through fraudulent credit card purchases, the Office of the Washington State Auditor found in a fraud report released today. It is the largest internal misappropriation in a state agency in at least the last 15 years.

The report identifies $878,115 in misappropriations between 2019 and 2023 at the Office of Administrative Hearings (OAH).

“This report demonstrates the power of our improving analytical tools and the continued importance of having our outside, professional auditors review government finances,” said State Auditor Pat McCarthy. “It should serve as a reminder to all government managers – be vigilant in your oversight. Trust, but verify.”

Auditors have long known that fraud frequently begins with a series of small transactions that people use as test scheme to secretly move money to themselves or others. If the smaller misappropriations are not detected, they often balloon in frequency and size.

The State Auditor’s Office developed a new data analysis tool to identify such patterns of exponential growth and scan large datasets of state purchase card transactions. The analysis highlighted a credit card belonging to OAH, which auditors reviewed.

The charges were for a consulting business, but when auditors asked for supporting records, OAH administrators could not find the documentation and did not recognize the business. It was registered with the Department of Revenue in the name of a management analyst who worked in OAH’s fiscal department.

Ultimately, auditors found the agency lacked appropriate financial controls, allowing the management analyst to charge the cards through four different business names the analyst created, in addition to making direct personal purchases with the cards. Among other control weaknesses, no one in the agency independently reviewed the analyst’s monthly reconciliation of the credit card charges or payments.

“I am greatly concerned by the increasing boldness of misappropriations of public funds at all levels of government,” said McCarthy. “This is the second case of six-figure losses we have reported this year, in addition to multiple smaller cases. We offer several fraud-prevention resources and trainings, and I encourage every local government and state agency to take advantage of them.”

OAH no longer employs the analyst who is the subject of the fraud report. Our Office will forward the report to the Thurston County Prosecuting Attorney’s Office.

The fraud report can be found on the State Auditor's Office website here: Fraud Investigation Report. A related accountability audit report can be found here: Accountability Audit Report.

In addition to investigating misappropriations, the State Auditor’s Office offers dozens of resources to help governments safeguard public resources and meet accounting requirements. A key guide – “Trust, but verify” – shows elected officials and other oversight personnel how to establish effective controls and prevent fraud. In a post on its website, the Office explains why reviewing bank statements is important, and what government leaders should look for. Another resource – “Segregation of Duties” – explains how accounting departments of all sizes can implement appropriate reviews and controls.

Media questions: Assistant Director of Communications Adam Wilson, Adam.Wilson@sao.wa.gov, 564-999-0799