The COVID-19 pandemic completely changed the workplace; long-term employees abruptly left, occupations became remote, and offices had to adapt to new technology. State and local government accounts were inundated with federal stimulus funds, and fraudsters enjoyed a golden age. The pandemic was just one of several recent hiccups that have rocked state and municipal governments’ finances, which manage $4 trillion in annual spending.
Paper trails and payments have moved online. Artificial intelligence (AI) techniques have made it easier for scammers to find victims, even inside government organizations. The United States’ local newspapers, a historically significant barrier against corruption, are disappearing at a pace of 2.5 per week. Few states are more aware of the most recent methods individuals are stealing and otherwise misusing local resources.
Washington’s Role in Uncovering Pandemic Era Fraud
The Washington State Auditor’s Office is the second-biggest state auditing shop in the country by budget ($64 million) and fifth by employee count (400). By state statute, the office must regularly examine the books and operations of Washington’s every town, county, port, stadium authority, asparagus commission, cemetery district, drainage district, and mosquito control district. It conducts as many as 2,400 state and local audits a year, rooting out fraud and waste.
The Impact of the Pandemic on Fraud
Brandi Pritchard, a career-long Washington auditor, helps lead the state’s fraud-preventing special investigations unit. She notes that during the pandemic, the sudden shift to remote work significantly increased fraud risk. Governments had to quickly change their internal control structures, making it easier for fraudsters to exploit vulnerabilities. However, most operations have returned to normal, with some exceptions.
The shift to remote work has introduced new problems, such as individuals working two full-time jobs for different agencies simultaneously. The move to electronic documentation has also made it easier for fraudsters to alter financial statements using tools like Photoshop. AI tools, like FraudGPT, have further paved the path for fraudsters, enabling them to create fake checks, statement templates, and phishing emails with ease.
Common Traits of Phishing Emails
Pritchard highlights common traits in phishing emails that target government agencies, such as the frequent use of the word “kindly” and a sense of urgency. These emails often ask for quick changes to payroll information or other sensitive data, making them more convincing and harder to detect.
Despite the increase in sophisticated fraud techniques, Pritchard notes that the number of fraud cases detected by the auditor’s office has not significantly changed. However, the amounts stolen have increased, and fraudsters are acting more brazenly. High-profile cases, such as the theft of nearly $7 million from the Pierce County Housing Authority, highlight the scale of the problem.
Most fraud is detected through tips rather than routine audits. However, the auditor’s office has been increasingly successful in uncovering high-dollar fraud cases. This success is partly due to the diligent review of bank statements, which often reveals discrepancies that lead to further investigation.
Challenges for Small Towns
Small towns often struggle with proper financial controls, relying heavily on trust in the people they hire. This trust can lead to significant vulnerabilities, especially when elected officials are related to one another. In some cases, like the town of Cusick, repeated warnings about inadequate financial controls go unheeded, leading to substantial fraud.
Psychological Factors in Fraud
Pritchard notes that many fraudsters justify their actions by claiming they intended to repay the money they took. This rationalization makes it easier for them to look themselves in the mirror. Many fraudsters also struggle with gambling problems, which can drive their criminal behavior.
Conclusion: A Positive Outlook
Despite the prevalence of fraud, Pritchard remains optimistic about humanity. She highlights the dedication and hard work of public servants who choose careers in government, often facing significant challenges and scrutiny. While fraudsters exist, they represent a small percentage of the overall workforce, which is committed to serving the public good.
