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Hacked school bank accounts hadn't been reconciled for nearly 12 years

FILE - Kern County's main government building is seen Tuesday, Feb. 7, 2017, in downtown Bakersfield, Calif. (KBAK/KBFX photo)

Who took $19 million dollars from local government checking accounts remains a mystery, but how they got away with it became clearer on Wednesday.

Several interviews with Kern County officials and a series of 12-year-old letters obtained by Eyewitness News indicates a strong possibility that clearing (checking) accounts used by the Kern County Superintendent of Schools and the Kern Community College District have not been properly reconciled for nearly 12 years.

Reconciliation is an important process designed to catch fraud. Think of it like the process one uses to make sure the activity on their bank statement matches up with what their personal check register says they purchased.

For many years this process was performed by the Kern County Auditor-Controller's office. But letters produced Wednesday by the county indicated the auditor stopped doing this May 31, 2005.

The letters, addressed to then-Assistant Chancellor of the Kern Community College district Tom Burke and then-Superintendent of Schools Larry Reider, cite a California Education Code which states, "No county officer shall be responsible for producing reports, statements, and other data relating to or based on these payments of the expenses of the districts."

The letter, penned by then-Auditor-Controller-County Clerk Ann Barnett, goes on to say "Therefore, it is our opinion that the reconciliation of the accounts would be best performed by those most familiar with the activity..."

Jon Von Flue, the assistant superintendent of schools, said Wednesday that his office has no record of ever having received the letter that transferred responsibility. He added that the letter contains an incorrect address for the Superintendent of Schools' office.

Asked whether anyone in his office has performed any reconciliation on clearing (checking) accounts, Von Flue said they didn't have enough information.

"I know that we haven't had access to the accounts, [not] 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," he said. "Nor did we feel that it was our responsibility to do so."

Mary Bedard, the county's assistant auditor-controller-clerk, forwarded emails to Eyewitness News Wednesday that appear to show evidence of other communication between the auditor's office and the two school agencies about the reconciliation responsibilities.

Joe Grubbs, the college district's new risk management consultant, spoke on behalf of the superintendent's office. He said Wednesday that the college district has not been performing the account reconciliation spoken of in the 2005 letter.

"Clearly there was a breakdown, we all understand that," he said. "We don't know when the breakdown occurred. Who had responsibility for it. Where that responsibility (of reconciling accounts) was switched over. We don't know the answers to those questions."

Grubbs also indicated the college district's accountants don't have access to the data that would be needed to perform the account reconciliation.

Asked who has access to banking records, County Treasurer-Tax Collector Jordan Kaufman said over the phone that "we're researching that."

Kaufman first reported there was a problem with the county's checking accounts February 3, issuing a press release that money had been taken as a result of a hack.

In the initial days of the investigation, it was estimated that the amount of fraudulent purchases was a "seven-digit number."

By March 7, the number ballooned to $19 million and the hack began two to three years ago.

Bankers and bureaucrats have worked together to reverse transactions identified as fraudulent and so far have recovered approximately $12 million. Kaufman hopes, but cannot promise, that investigators will be able to recover close to all of what was taken.

$16.4 million was taken from the clearing accounts tied to the college district and $2.6 million was taken from the accounts tied to the superintendent's office.

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