The fraud factor

Published on March 23, 2005
© 2005- The Baltimore Sun

AS IF Baltimore's school system weren't financially challenged enough
trying to correct a major deficit, it was the victim of a $3 million,
decade-long fraud scheme, allegedly by a business contractor who has
recently been *indicted* by a city grand jury. While the fraud preceded
the current school administration, the indictment is yet another
reminder of the importance of having good financial and management
controls in place.

As outlined by the grand jury, Gilbert Sapperstein of Baltimore
County, the longtime owner and operator of All State Boiler Co., was
allegedly involved in two billing schemes in the city. In two
indictments, Mr. Sapperstein is accused, with others, of conspiring to
bribe a former maintenance manager for the school system, Rajiv Dixit,
and then conspiring with Mr. Dixit to steal more than $3 million from
the school system. The fraud allegedly continued for more than a decade,
from 1991 to 2003. In addition to the school fraud, Mr. Sapperstein is
also accused of conspiring to steal $130,000 from the city Department of
Public Works. The investigation by the state prosecutor's office has
already yielded other charges. Mr. Dixit, for example, is awaiting trial
on charges that he embezzled more than $150,000 and that he helped
another contractor steal more than $140,000. The school system has
cooperated with the investigation -- which is ongoing -- and has said
that its contract with All State has expired.

What can a major system do to protect itself from those bent on fraud?
At the least, put in place procedures that can raise red flags at
multiple checkpoints. Even though this fraud did not occur during the
watch of the current top school administrators, they have certainly been
burned by weak financial oversight. They would be wise to use this
occasion as yet another sharp reminder that effective internal financial
controls are critical in running any organization, particularly for a
public organization that is spending taxpayer dollars.