The fraud factor

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.