In the business section of a cable news station, I came across an article about a new, and very sophisticated software that claims it can detect employee fraud. The software works on an “AI” or artificial intelligence platform. In order to function, of course, it will 
need to be put onto a modern computer network that will be maintained by IT professionals.
While it could very well work for large scale accounting entries with multi-million, or billion-dollar enterprises, the software can’t necessarily detect unethical behavior. It is also of little use at the tens of millions of smaller scale organizations where fraud can live with relative ease.
Who is Kathy Nelson?
For nearly nine years, Kathy Nelson, an employee of OSCO, the Okaloosa County’s Water and Sewer Department in Florida’s panhandle, was happily engaging in low level fraud. She has been charged with grand theft and other crimes for taking cash payments from builders in exchange for falsifying documents. She was able to divert funds that should have gone to Okaloosa County’s coffers of more than $223,000. There was a separate “arrangement” of about $107,000 in diverted funds she committed as well. In exchange for this “diversion,” Nelson received cash kickbacks.
Whenever there is new construction, builders have to pay municipalities for water taps or “taps.” Obviously, a new building will increase water demand and several new homes or a factory complex will expand water usage even more.
However, something proved to be strange during an initial in-house audit. It seemed as though Nelson had failed to collect close to $60,000. in water and sewer capacity expansion charges, commonly referred to as “taps.” Not only were fees missing, but evidence was found of fictitious entries, invalid receipts, and altered documents in the customer service database.
The records were faked to make it appear the proper charges were paid. In fact, when the auditors got more in-depth with their audit, they found billing irregularities in 83 accounts linked to the same three building contractors. Naturally, the contractors were complicit in the scam.
For not billing the contractors for the taps, the contractors paid her in cash-filled envelopes. As the fraud widened, it was discovered that more than $330,000 in fees were avoided.
Kathy Nelson does not have the look of a hardened criminal. She is a middle-aged woman nearing 58 years of age. She started to participate in the fraud because she saw the opportunity to do so. There was little in the way of oversight or in checks and balances. She was “bought off” for several years, quite content to fake documents for nice cash payments.
Fraud Multiplied
Is this case of fraud so terribly unusual? Unfortunately, I tend to doubt it. There are many municipalities that have the equivalent mission of OSCO. Year in, and year out, they do their important albeit somewhat predictable work. They are bureaucracies where there is usual low-risk and low-reward.
Employees not motivated to find satisfaction within the framework of the job, may find other ways to manifest their senses of under-appreciation and gratification. Sometimes these “ways” include unethical behavior. OSCO, of course, owed Kathy Nelson nothing. She was given a stable administrative job with stable pay and benefits and in exchange she had to perform a predictable job. There were many ways she could have chosen to fulfill her need to make more money but instead she chose fraud.
How the fraud started is anyone’s guess. How she was approached, or how she approached the contractors has not yet been fully determined. Someone “tested the waters,” and someone accepted. A fee was named, and money was exchanged. Over time, the administrator with the predictable job, was making a more than decent salary.
As to ethical training for all of OSCO’s employees, we have no evidence. My guess is that the training, if it occurred at all, was cursory and not reinforced. I do not doubt for one minute that somewhere, right this minute, a similar type of fraud is occurring in several organizations across the country.
Ethical training is inexpensive. Fraud is costly. There can – and will be – all kinds of software created in the future to try and detect fraud, but it will not be able to gauge the degree of ethics in the human heart.
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