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Emails show Kern County schools knew but didn't perform accounting duties prior to hack

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Emails uncovered Friday by Eyewitness News appear to indicate that officials in the Kern County Superintendent of Schools office knew and understood as far back as 2005 that it was their office that was responsible for reconciling the banking activity in their clearing accounts.

The clearing (checking) accounts for the superintendent's office, as well as those tied to the Kern Community College District, were hacked three years ago. Beginning in February 2014, someone was able to steal $19 million from this set of accounts.


It wasn't until Wells Fargo sounded the alarm last month that authorities realized what happened and put an end to it.

Reconciliation is an important tool to detect fraud. It involves making sure that the banking activity in the transaction history matches up with the purchases that the real account holder made.

"If these accounts had been reconciled, this fraud would've been preventable," Kern County Treasurer Jordan Kaufman said Wednesday.

Reconciling the schools' accounts used to be a function of Kern County Auditor-Controller's office. But officials in that department told Eyewitness News this week that they transferred that responsibility to the schools in 2005, in accordance with state education code.


The auditor's office provided Eyewitness News with two letters - one sent to each school agency April 21, 2005 - that outlines this change.

Officials with the superintendent of schools office deny ever receiving the letter. It should be noted that there has been notable turnover in the relevant departments in the last 12 years.

Joe Grubbs, a representative of the college district, doesn't deny that his agency received such a letter, but maintains that the transfer of responsibility was not made clear.

Officials from both agencies have told Eyewitness News in multiple interviews this week that their accountants have long lacked access to the proper bank records to complete a detailed reconciliation.

They say that the transaction-level bank statements for the county's Wells Fargo bank accounts are sent to the county administrative office.

But officials with the treasurer and auditor's offices have refuted such statements and provided bank records and emails that they say show those statements to be untrue.

The auditor-controller on Friday provided Eyewitness News with an email correspondence from 2005 just days after the letter was sent that outlined the transfer of the accounting responsibilities.


In it, a finance official for the superintendent's office references a recent meeting about the change saying, "Thanks for making your staff available to us this morning to review the procedures for the reconciliation of our bank accounts...."

In response, a member of the county's accounting staff says, "I am glad the meeting on the reconciliations was helpful."

The superintendent of schools office declined our requests Thursday and Friday for an on-camera interview, but sent the following statement:

"At this point, we have more questions than answers. We will reserve further comment until things become clearer once the third party forensic audit that we have called for in partnership with the college district can shed some light on what has transpired in the past 12 years."

The county also produced old documents that pertain to the college district. For more on those, and the college district's response, see this story from Thursday.

The treasurer's office has reported that Wells Fargo has recovered $12 million of the stolen money. They are cautiously optimistic that this number will continue to rise.

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