Tracking Waste, Fraud & Abuse in Nebraska with Addie Costello & Deputy Auditor Craig Kubicek
City clerks in 17 small Nebraska towns have been caught stealing from taxpayers in recent years. Addie Costello of the Flatwater Free Press and Nebraska Deputy Auditor Craig Kubicek discuss ways Nebraskans can trust but verify what government is doing with your money, and what to do if you see something that might be wrong. A transcript of this episode is available below.
The article discussed on this episode can be found below. The Nebraska Auditor of Public Accounts maintains a Taxpayer Advocate Hotline where you can anonymously report fraud, waste, or abuse. A live representative can be reached at 1-800-842-8348, or you can contact the Auditor online here. More about the Flatwater Free Press here.
Jim Vokal: I served as a city councilmember for eight years, and I can attest there are some great people working in local elected and staff positions across Nebraska.
But like any workplace, there are also people in government who don’t act with integrity. It’s tough sometimes in Nebraska’s many tight-knit communities to face the reality that people you like and trust—someone you might chat with when you see them at the grocery store—could be also be a criminal who abuses their public office to steal from taxpayers.
My two guests today are keeping Nebraskans informed about financial mismanagement and outright fraud happening at the local and state levels.
Addie Costello is a contributing reporter at the Flatwater Free Press, a Nebraska-based nonprofit news outlet the Platte Institute is glad to sponsor.
And Craig Kubicek is Nebraska’s Deputy Auditor of Public Accounts, which is charged with providing independent assessments of Nebraska’s government operations.
Addie, let’s start with your recent report in the Flatwater Free Press, for which the Deputy Auditor is also a source. Your publication is calling it “A Flurry of Fraud,” with records showing taxpayers in at least 17 small Nebraska towns were victims of embezzlement by their own city clerks in recent years. Can you share more about the story with listeners and what your process was for reporting on it?
Addie Costello: Yeah, so, a reporter at the Flatwater Free Press was assigned to cover the anniversary of the Pilger tornado, and in case you don’t know, the Pilger clerk stole $700,000 of Pilger’s money and relief funds, but our editors really wanted to make sure that it wasn’t presented as “this happened to Pilger and only in Pilger,” because it definitely was not an isolated incident. So I went through, and there’s a Twitter thread that an old Omaha World-Herald reporter had compiled through his career—instances of fraud that he witnessed. And I started with that. I did a lot of Googles of various search words, and then Craig helped me out and sent me a bunch of additional cases that were just in audit reports. So I sifted through those, and then it was mostly just calling up current city clerks, the board members that might have been on the board at the time, and current board members, as well as experts that can speak to, you know, why it happened so frequently and what could have been done to stop it.
Jim Vokal: Appreciate you sharing that. We’re going to now move to Deputy Auditor Kubicek. So here at the Platte Institute, we look at the Auditor’s Office as the last line of defense against government mismanagement. If locally-elected officials or state legislators aren’t going to do anything—or in fairness, don’t know what to do—about financial mismanagement, your office has the ability to sound the alarm that something’s wrong. But many small local governments are not regularly audited by the state, and even larger political subdivisions may use financial practices that are not very transparent. So how did your team get to the bottom of the cases Addie is reporting on, and what should Nebraskans be doing with this information?
Deputy Auditor Craig Kubicek: Well, yeah, thank you. Thank you for the intro. So we have a hotline, so anybody can call in with fraud, waste, abuse issues, and we get concerns daily. Now some of those don’t rise to the level of fraud, waste, or abuse, or what we consider something we turn over to a county attorney or the attorney general, but several of those are. Many of these cases come from a simple complaint. A concerned citizen’s trying to get information from their municipality, and we go start answering questions, and sometimes that results in, you know, fraudulent activity. It just depends on the case that we’re working on, for these that we come across.
But several years ago, I think it was about three years ago for villages, that we were seeing a lot of frauds come across. While they can still get a waiver from our office if they spend less than $500,000, we now require all of the villages requesting a waiver to submit their bank statements to our office so we can do a cursory review—look at their board minutes, look at some of their controls in place. That’s hopefully going to help you know. If they think somebody’s looking, they might be less likely to do this type of activity.
Jim Vokal: And so what should Nebraskans be doing with this information that you discover?
Deputy Auditor Craig Kubicek: Yeah, I mean, we try to do a lot of trainings. You know, we do the Society of CPAs, we do the League of Municipalities, we do NACO [Nebraska Association of County Officials] for our county folks, and so we’re trying to educate them to try and prevent what I call, like, “the pay and chase mentality.” Most entities have “OK, the money’s gone, now what do we do?” And so what I try to do from an auditor perspective is trying to educate board members, clerks, treasurers, to get ahead of it and say, “Hey, let’s put some controls in place to prevent it from happening before it’s too late,” and now we’re trying to get the money back from wherever those monies went.
Jim Vokal: Thanks for sharing that. OK, now I have a question for each of you. Are you getting pushback for publicizing these facts or have you encountered reluctance from local officials in opening up to you and investigating financial mismanagement issues? Let’s start with you, Addie.
Addie Costello: I haven’t gotten any pushback since it was published, but through the reporting process, it was definitely tough to get certain board members of towns to talk. You know, I think there’s just a lot of embarrassment, and like wanting to put that in the past, which is understandable, but since it’s been published, I haven’t gotten any kind of pushback.
Jim Vokal: Yeah, I appreciate that. Certainly, nobody likes getting caught making mistakes or seeming foolish, but in my experience, every local government in Nebraska will tell you their financial management is impeccable—or at least the best they can manage—right up until the crisis happens, like what Addie describes in her article. Craig, what’s your takeaway?
Deputy Auditor Craig Kubicek: Yeah, we don’t usually get too much pushback. You know, it depends on the municipality, but most of the time they’re good to work with, and they’re wanting change, and they’re wanting some of their funds back, so they’re, you know, willing to provide us information. I have had a couple in the past where they tried to—they didn’t want it public, so they tried to either negotiate with perpetrator, and then we found out about it. You know, did some outside work and came up with different conclusions, and more money than they had come up with that was actually stolen, so we have seen cases like that. I think that’s more on the private side where they—“Hey, we don’t want to be in the news let’s just make this go away,” but we once we get started, we don’t get much pushback from those local officials.
Jim Vokal: And why don’t either one of you—or maybe both of you—I think it might be helpful for listeners to describe the findings of the content in Addie’s article. How do you want to maybe summarize what you discovered?
Addie Costello: Yeah, so through mostly audit reports from Craig’s office, we found that roughly $1.7 million was stolen, or possibly stolen, in the past decade—so since 2012—by just city and village clerks. That’s 14 city and village clerks from 13 different cities and villages over the past 10 years. One clerk was actually responsible for stealing from three separate villages all at the same time. And it’s mostly an issue of not enough people working at that local level, board members that don’t—that aren’t required to undergo any kind of training, so they maybe don’t have the financial background needed to stay on top of these kinds of things, and then clerks that maybe aren’t making what they feel they should deserve. I mean, most of these clerks are tasked with, like, running these towns, and some of them make, like, $12 an hour, or in some cases less. And then the big issue is just trust, because a lot of times the clerks have been there longer than their board members that are supposed to be overseeing them, and there’s a lot of, like, blank check signing or the clerk signs the checks, cashes the checks, and then is in charge of reporting the bank statements, so there’s just not enough oversight.
Jim Vokal: Deputy Auditor Kubicek, do you have anything to add?
Deputy Auditor Craig Kubicek: No, I think that was a good summary. Just a couple things—in all of these they all kind of have their different nuances on what they’re doing and how they’re doing it. You know, she mentioned the one in three different villages. Well, she was presenting the check to the board for a certain amount, and leaving a little room at the beginning of the number…and then once the board chair signed the check, then she was either adding a 1 or a 2 to that check, and then nobody was, you know, following up and looking at the bank statements. And so, when I go out and do these presentations, I’m just you know, “Have somebody look at the bank statement.”
It doesn’t take that much time to look at the images, you know, scan through them, is there any, you know red flags, that I think a lot of these could have been caught a lot sooner if a board member would just be looking at the bank statements just monthly. You know, we’ve had cases where they’re falsifying bank records or other, you know, invoices or those sort of things, so those are something to look out for. But a lot of times, when those happen, they’re only falsifying what I consider, like, the first two pages of the bank statements, they’re not falsifying the images, so that’s one thing that we always recommend. You know, there are so many different examples of, like she mentioned, there’s payroll, there’s expense reimbursements, there’s a lot of cash that comes through these villages—you know through the utility process—and so, it’s the full spectrum of ways that people commit. And it is a thing of trust, and I was presenting at the League of Municipalities last week, and you know they admit it, “We trust these people and we want to want them to trust us,” but what I always say is “trust and verify,” and have some controls in place. There’s, you know, maybe only one person doing it—writing the checks, receiving the money, reconciling the bank, and then your board members or a lot of, you know, local officials that have other full-time jobs, and so they don’t have a lot of time to be digging into the city or village business, and so it’s ripe for issues like this. But we’re, like I said, trying to get some education out there, and you know, doing some cursory review of those bank statements and other village records to hopefully prevent some of these from happening again.
Jim Vokal: All right, Addie, let’s talk a little bit about data gathering and the process that you used. What would make it easier for you to report on these issues? It seems from your writing, I’d gather, that you have a feeling that there’s more theft of taxpayer dollars going on, and hopefully that has the crooks on the run, but do you or anyone have enough tools to know for sure?
Addie Costello: I think what I was getting at and what I heard from a couple of experts was just that “Oh, there’s probably more fraud happening.” In most of these cases, it was ongoing for multiple years, so since it happened pretty much every year since 2012, we can maybe assume that that’s probably still going on somewhere. I think it’s more of an issue—it’s easy to find most of the reports of cases that actually happen the problem was— I just we don’t know if all of the cases were caught and have reports to go after, so I think that’s where the problem lied. The Auditor’s office had, you know, most of the reports available, there were a couple that I had to review court documents for, but I was able to get mostly everything. I guess one tricky part is each case is handled differently, like on the prosecution side, so there weren’t always, like, charges. I had to be sort of careful with my wording in the story because sometimes it’s a smaller amount, and they aren’t fully prosecuted. And I think I had one expert tell me—a professor tell me—that, you know, if it’s a small amount, it’s sort of embarrassing for the board, so it might be more of like a hush-hush, under-the-table, like firing, versus public, where there would be a report to follow.
Jim Vokal: Appreciate that. All right, Deputy Auditor Kubicek, in your office’s work you’ve identified many shortcomings in the State of Nebraska’s own process for reconciling expenses, especially the recent federal funds, so it’s certainly not local governments that deserve all the attention. Can you talk a bit more about what you’ve recently found at the state level and what lawmakers in Lincoln should do to set a better example, and build upon our financial infrastructure at both the state and local level?
Deputy Auditor Craig Kubicek: Yeah, like I mentioned, I was at the League of Municipalities last week, and I presented that the State of Nebraska should be the example, you know, not in a bad way, but in a good way. And so, in the last two Annual Comprehensive Financial Reports that our office worked on and issued, we had an unclean opinion. This year, we had over $10 billion dollars in errors that came across through that reporting process. And so, you know, like I mentioned, the state should be setting the example for these local officials for how to properly report and get the financials correct, and so we got to do a better job at the state level to set that example.
Jim Vokal: I’d love to get both of your thoughts on this next question. Nebraska has many small political subdivisions, some of them, as Addie reports, receive audit waivers because of their size and because they don’t have the staff or expertise to regularly comply with the many standard financial practices. But are we drawing the line in the right place currently, and should local boards be able to vote on levying taxes and asking us to assume debt if they can’t honestly show us where their money is going? Craig, I’ll start with you.
Deputy Auditor Craig Kubicek: Yeah, I mean, to me we gotta set some sort of threshold. You know, if we got a village that spends $100,000 and we’re gonna have them spend $10,000 on an audit, I don’t know if that’s an efficient use of—yeah, there might be a fraud, but at some point we as an office decided that $500,000 is a good number, and I think with the added procedures of, you know, looking at their bank records, and those sort of things, we can prevent or help prevent some of these issues from occurring. You know, it is a board decision when they request, you know, a waiver but they’re still having to put together, you know, a budget that’s filed with their office—that doesn’t get them away from the budget um and filing the actual expenditures as such. And so, yeah, fraud’s out there, it’s going to happen. I think, you know, some of these examples that that were reported on had audits, and so just because you have an audit doesn’t you know make fraud go away, you know, in a pandemic or, you know, certain economic issues that we’re currently under, people feel a pinch, and whether you have an audit or not, you know, frauds can happen.
Jim Vokal: Addie, what’s your perspective
Addie Costello: Yeah, there were definitely a lot of examples of where audits were happening regularly, but it still occurred. I think that the $10,000 audit is a lot to swing for these villages, but some have gone, you know, over 20 years without one, and maybe that’s where a threshold could be placed. You know, maybe it’s not an every year thing, but semi-regular.
Jim Vokal: I appreciate that—20 years—that’s amazing. All right, as you might guess, our listeners are very interested in this topic, that’s why we’re having you on today. But based on each of your experiences, what parting advice do each of you have for Nebraskans who care about financial transparency and accountability, and don’t know what to do about it? Addie, we’ll start with you.
Addie Costello: I think, with the city and village clerk-level fraud, going to those board meetings would be really helpful. It’s where most of the checks are approved or signed and it’s also where they might talk about an influx of cash coming in for a project. And then, you know, there were a case or two where a citizen heard about, “this thing is supposed to be getting done, I’m not seeing that money being actually used,” and that’s how fraud was discovered. So going to those board meetings, even if it’s not you know particularly an exciting one, can definitely be a check on those clerks and board members.
Jim Vokal: Deputy Auditor Kubicek, what are your thoughts?
Deputy Auditor Craig Kubicek: Yeah, I’d echo that, you know, and even going to those board meetings, it’s hard. We just issued—the city of Oakland, you know, where the police chief was buying gift cards and saying he was using that for ammunition, well you trust that individual as a police chief to, you know, do what’s right, and so I don’t think in that case, you know, attending a board meeting is gonna help that case. Because, you know, of the questions that were asked and the answers, and everybody kind of “Oh, OK, that that seems reasonable.” But I think that’s a good idea, you know, just asking questions, holding your Treasurers accountable, asking your board members questions, you know, if things just don’t look right—one of the examples, you know Village of Craig back in the day, we just had a concerned citizen that wasn’t seeing that highway allocation money. Their roads weren’t getting repaired, it just doesn’t seem like there was any maintenance, and so they started asking questions to the clerk, couldn’t get answers, asked questions to the board, couldn’t get answers. They called us and we have over $100,000 fraud because, just based on you know questions being asked to our office and to them, and not getting the answers they wanted. And we do have a hotline [1-800-842-8348] and so if if you have things that come up, you know, I tell the clerks and treasurers all the time, or the CPAs—you know, if you have something that comes up that doesn’t look right, call our office. That’s what we’re here for, to help and put in those resources, and we can gain access to a lot of records without even, you know, contacting the entity and doing some background work, and so that’s what that hotline’s for, to be used for concerns of fraud, waste, or abuse across the State of Nebraska.
Jim Vokal: Our guests today have been Addie Costello of the Flatwater Free Press and Nebraska Deputy Auditor Craig Kubicek. Thank you both for your work, we’d love to have you back again, and thanks for joining me today on Nebraskanomics.
Addie Costello: Thank you.
Deputy Auditor Craig Kubicek: Yes, thank you very much.