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County, schools at odds over responsibility for reconciling hacked accounts

This week, the investigation into $19 million fraudulently taken from local school banking accounts became a debate about an accounting term -- reconciliation.

"That's where you find, you confirm that the banking activity that has been taking place is the banking activity that you want to take place out of that account," said Joe Grubbs, a risk management consultant serving as the spokesperson for the college district.

"If these accounts had been reconciled, this fraud would've been preventable," said Jordan Kaufman, the county's treasurer-tax collector.

But, for 12 years, the checking accounts for the Kern County Superintendent of Schools and the Kern Community College District were never reconciled. That proved to be a very expensive mistake, beginning in 2014.

In the last three years, more than $16 million was stolen from the college district account and just under $3 million was taken from the superintendent's account.

Kaufman first announced the breach in the accounts February 3, forecasting at the time that a review of the accounts would likely reveal a seven-figure loss.

At issue now is who should have been reconciling the checking accounts during the three years in which thieves successfully skimmed the money.

Until 2005, the county's auditor-controller had that responsibility. But Assistant Auditor-Controller-Clerk Susan Rooney said Wednesday that state law changed that. She produced two letters - one sent to each school agency - that she says absolved her office of the responsibility of reconciling the school's checking accounts.

"This letter specifically says that the reconciliation would no longer be completed by the county and that it would be handed over, along with all the other materials, to do the reconciliations," she said.

But the content of the letters appears to have been lost in translation.

"Clearly there was a breakdown," Grubbs said.

Representatives of both school agencies said this week they never understood reconciling checking accounts to be their responsibility. Furthermore, both organizations say their accountants weren't ever supplied with the necessary bank records to do such a check.

"We haven't had access to the accounts at the bank, nor at the county's clearing accounts in order to have the detailed information we need to do this type of reconciliation," said John Von Flue, an assistant superintendent.

"We had not had that prior to February 7, [2017]" Grubbs said.

But the treasurer on Thursday supplied Wells Fargo bank records to Eyewitness News that he says shows accounting staff at each school agency had access to transaction-level account records at least several years prior to the start of the fraudulent activity.

A spokesperson for the superintendent's office declined an interview Thursday.

Grubbs, representing the college district, said the situation is more complex than it may appear.

"Our contention is because we have this document doesn't mean that our employees ever knew they had access to the account," he said. "That's why we need an examiner to come in, look at this and find out what happened. All this right now is just speculation and conjecture."

To that end, both school agencies have entered into a joint contract with an out-of-town firm to perform a complete forensic examination.

Kaufman reports that so far, $12 million of the stolen money has been recovered. He is cautiously optimistic that that number will continue to rise.

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