HomeNewsTown Pays Fake Invoice. Who's Minding the Store?

Town Pays Fake Invoice. Who’s Minding the Store?

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20th Century Homes

Editor’s note: At the request of several readers, this article has been unlocked and is now available to everyone, regardless of subscription level.

The Town of Hopkinton has seen extraordinary turnover in recent months, and no department has been hit harder than Finance, which as of December 2, has vacancies for Chief Financial Officer, Town Accountant, and Payroll Manager. It is rumored that longtime employee and current Treasurer Diane Hendrickson is retiring in January, and yesterday Town Manager Norman Khumalo announced his exit

While the town has posted several open positions to replace these key roles, the surprise exit of Human Resources Director Maria Casey could slow down the hiring process. 

With so much turnover, it prompted the question: What financial controls are in place, and who enforces them? 

In November, HopNews sought to test the strength of these processes. We created a “fake” invoice in the amount of $200 for an advertising campaign with a “real” sounding name; Ad for EV Expo by Sustainable Green Committee. On November 8 we sent it to Accounts Payable via email, expecting our request to be rejected quickly.

Two days later we received a reply asking us to supply an updated W-9, a required IRS form. We provided the W-9 for Arch Publishing, HopNews’ parent company. On November 21 a $200 check arrived by mail, signed by the Treasurer.

MGL Chapter 41, Section 56 explicitly describes the procedures for municipalities to pay bills. “The town accountant shall examine all such bills, drafts, orders and pay rolls” and “approval shall be given only after an examination to determine that the charges are correct and that the goods, materials or services charged for were ordered and that such goods and materials were delivered and that the services were actually rendered to or for the town“.

There were multiple points of failure in this process. In the first place, neither HopNews or Arch Publishing have ever performed work for the town, so the invoice would have required someone to create a vendor record in the accounting system. Second, although the description looked real, the advertising campaign didn’t exist. Finally, we identified the Sustainable Green Committee on the invoice; presumably no one on the committee was asked if this was a legitimate expense.

An Unmanageable Number of Approved Vendors

Our exercise was not a spontaneous occurrence. On October 10, HopNews requested and received a spreadsheet of all invoices paid by the town since October 2020. Over a nearly four year period, 87,866 individual payments were made to 6,311 vendors. Excluding employee salaries, which are by far the town’s largest expense, the town paid out $60 million in 2020, $61 million in 2021, $65 million in 2022, and $73 million in 2023. This equates to 17% increase in expenses over four years.

The biggest recipient of town funds is US Bank, which has been paid $57 million since 2020, for the payment of bond premiums and interest. The second largest expense is $43 million to Mass General Brigham, which administers the health plan for town employees.

Many personal finance systems, such as Quicken, support categorization for financial transactions. Users can categorize a check paid to “Price Chopper” as “Groceries”, for example, and later run a report of spending by category. Presumably the town’s accounting system does this too, but the export we received did not contain categories. Nevertheless, we made our best effort to categorize transactions by researching the vendors individually, and the top 20 expense categories are shown below.

Legitimate questions can be raised about some of this spending. For example, the town spent nearly $3 million on outside legal counsel over the period. If the town had hired an attorney, some of these legal expenses could have been handled internally, resulting in considerable cost savings. Similarly, the town spent approximately $334,000 on outside accountants when, until recently, they had a full accounting staff. Engineering costs were more than $6.5 million, presumably due to the Main Street Project, but the Department of Public Works has engineering on staff. 

Who Determines Who Gets Paid?

Another serious concern is the overwhelming number of vendors. In private industry it is considered a best practice for companies to maintain both a preferred and approved vendor list.

A preferred vendor is an organization’s chosen supplier based on several factors, including quality, price, and customer service. A preferred vendor typically offers more favorable terms than a non-preferred vendor, and the organization may give the preferred vendor preference when awarding contracts.

An approved vendor is a supplier that has simply been deemed acceptable by the organization. An approved vendor may not offer the same benefits as a preferred vendor, but the company is confident that the approved vendor can provide acceptable goods or services.

From a financial standpoint, having a smaller list of vendors improves transparency and makes fraud easier to detect.

There is no documented vendor approval or onboarding process for the town. Essentially, any individual or company can get paid, provided they have supplied the town with a one-page IRS form. Over the ten months of 2023 the town paid 949 vendors, an extraordinary number of relationships to maintain for a department with such limited resources. 

Town departments are not required to issue purchase orders to vendors, nor are vendors required to reference purchase orders when invoicing the town. This is in contrast to private industry where matching a purchase order to an invoice is standard practice. In addition, purchase orders over a certain amount require approval at a higher level of management. Even invoices above a certain amount may require multiple approvals.

Complicating the matter, the export of data HopNews received included payments to the same vendor company but spelled differently (“USBANK“, “US BANK“, “US BANK CORP”), in this case making it appear to be three individual companies. This makes reporting transactions by vendor challenging.

Introducing a vendor approval process and reducing the list of vendors would be a good first step in confirming that legitimate expenses are being paid. Additionally, requiring purchase orders to be issued by town departments before billing would ensure that only approved, budgeted expenses are paid.

Obviously, HopNews voided the check and will return it to Town Hall.

Prior to publishing, HopNews sent this article to Town Manager Khumalo and requested a comment. In a written statement, Mr. Khumalo said: “We learned today that the Town of Hopkinton recently received a fraudulent invoice from HopNews.com that was unfortunately processed and subsequently paid. We have taken the appropriate steps to correct for the mistake and cancel the payment; we have further taken the steps to ensure that our review processes for like payments are reinforced to protect our employees and the town from similar fraudulent activity in the future. We want to be clear that we have full confidence in our employees, and we will be pursuing appropriate legal recourse to protect the town in the future from fraudulent activities.”

The lack of basic financial controls creates serious doubt that invoices and payments are being scrutinized to an appropriate level of detail. We are left to wonder how often – and to what extent – the town has previously paid invoices for work it never received, or paid invoices that were over the budgeted amount, if there even was a budget. Unfortunately, it is a common occurrence in municipal fraud for vendors to issue inflated invoices that are unjustified. It is simply too tempting to grab a few extra dollars when no one is minding the store.

Foemmel Fine Homes
UniBank CD Special

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22 COMMENTS

  1. Wait, what? How is sending a fake invoice to the Town not fraud? Were you working with someone at the Town to test the system? To put it another way, did you commit a crime by faking an invoice, even it was in the name of journalism? I don’t know if just not cashing the check makes it ok.

  2. Thank you for shedding a light on the lack of internal controls in the fiscal management of our town . Hope this gets the attention it deserves.

  3. The larger question that must be considered is: How has our town unwittingly become a target for financial exploitation over the years? Vendors could have been exploiting our taxpayer dollars for years. Who is behind the scenes doing the legwork to ensure they’re not fake? I’m sorry, but we all learned in kindergarten using the Honor System just doesn’t cut it, especially when the money comes from MY pocket. Kudos to HopNews for another illuminating article that sheds light on the recurring shortcomings of our local government.

  4. Correct me if I’m wrong. To be a criminal act in this case, the defendant would have to have criminal intent with the belief the defendant was permanently depriving the victim and had no intention of ever returning the funds.

  5. Dear Mr. Townsley: So, let me get this straight. You think HopNews should be punished for exposing the lack of financial oversight of OUR money? In other words, shoot the messenger? HopNews should be praised for trying to protect the taxpayers of this town.

    • I guess I am saying that they’re walking a fine line. Often when I’ve heard of similar types of exercises, like hack-a-thons where companies invite folks to test their firewalls, it’s done with some level understanding with the organization that’s being tested what is going on. This instance is obviously pretty minor in the grand scheme of things but, yes, I think it’s a worthy question to ask, if only because of the precedent it could set for others. Would you be OK with someone randomly pulling a fire alarm at rush hour to “test” how well the fire trucks can get down the new Main St, or would you want them coordinating that with someone at the department ahead of time? Do you want people “testing” the speed cameras to see if they work and then fighting the tickets using that excuse? We’re seeing it play out in the courts right now with Turtleboy and that bloggers interactions with witnesses in the Karen Read case. It’s just a real gray area and I don’t understand why anyone would think otherwise or take such offense to the question being asked.

      • Dear Mr. Townsley: I am not taking offense to your asking the question. I respect your right to ask it and to express your opinion, even if I disagree with it. What I did was to reply to your question. HopNews is doing an excellent job for our town by doing investigative journalism. It seems a bit unrealistic to notify the town in advance of this test of their internal controls. The other examples you cite are extreme and put the public in danger. They are a completely false analogy. HopNews is exposing the fact that the taxpayers of this town are already in danger, and is making them aware of it. I don’t understand who got hurt by the actions of HopNews, but I can think of a lot of people who got helped by realizing how poor our town’s internal financial controls are. There are serious issues with our town’s financial management. Thank you, HopNews, for helping expose the shortfalls.

    • Actually, yes. Having the good intention of “shining a light” on an issue with municipal finances doesn’t negate the fact that this paper knowingly submitted a fake invoice to see if they would receive payment. There are plenty of stories where other people did the same thing and were arrested for fraud (look up what happened in Uxbridge, for instance). Voiding the check and posting an article with their “gotcha!” headline doesn’t mean they weren’t bad actors in the first place. They tried to be cute and crossed the line.

  6. All I will say is that it’s a blessing to have the first amendment protecting our ability for free speech. Even the dumb stuff that comes out of people’s mouths

  7. Stating the obvious, yet again, HopNews by their excellent investigative work shows us very clearly that Mr. Khumalo should have been fired long ago rather than bask in a glowing light cast over him by incompetent elected officials.

    This beautiful town is a hot mess.

  8. I fully agree with Jim Scanlon’s post relative to the “Town Manager”. Mr. Khumalo should have been fired long ago, or better yet, not have been hired in the first place. He leaves the Town close to bankrupt with many Town employees leaving their positions as the ship has begun to take on water.

    After this revealing article from HopNews. it begs the question as to how much of the $150,000,000+ spending for the Elmwood School replacement will be siphoned off by thieves, crooked contractors, sweet-heart contracts and the sheer incompetance of those managing (actually mismanaging) the Town’s finances.

    A forensic accounting and review of all Town expenditures over the last five years is sorely needed.

  9. Susan Smith: For a crime to be committed there has to be criminal intent with a specific criminal act. There was no criminal intent by Hopnews. That being said, the crime wouldn’t have been completed until the check was presented ( uttered ) to the bank for payment.

  10. The best thing about this article is how it teaches the government a lesson on accountability through public humiliation which directly translates into an improved experience and trust from the public. Yes we have fairly desperate circumstances at Town Hall with virtually no senior leadership but hey at least HopNews is happy to expose the weaknesses of our government to the extent that surely enables more fraudulent activity from bad actors. Yes this was just the right thing to do given all the vacancies and the growing lack of trust among us. Thank you for this truly selfless act. I am sure that as a result of your article the town will be healed of her sickness and protected from those who seek to harm her. In fact I am so sure this was for the good of the town that there should be a blossoming healthy town government next fiscal year as a direct result of your noble journalism. Otherwise I would be deeply worried about the negative consequences of setting ablaze the public’s confidence in this way at the same hour that no one wants to work in our town anymore plus the financial situation we all carry for the next five years.

    • To The Grinch:

      While I appreciate your unique perspective, it’s hard to ignore the utter lack of logical coherence in your comment. Personally, I find it refreshing how HopNews tackles these issues in our town government. Frankly, it’s crazy to me that you would spend that long crafting a comment to an article that it appears you only have a basic understanding of. Perhaps you should examine the subject matter more critically before making sweeping unsubstantiated comments like the ones above. If you would rather live in a world where you have blind faith in our government, then that’s on you. Maybe you should choose not to read HopNews, because it appears that they’re the only ones who are willing to tell the truth about what’s really going on behind the scenes. Sarcasm is not a good look for you, Grinch. You should stick to stealing Christmas presents, not dissecting town affairs.

  11. Cameron: I agree! Hopnews broke the story of the corruption within the Hopkinton Democratic Committee. If not for Hopnews Darlene Hayes would still be a a force to be reckoned with.

  12. There is no need for strong financial controls because the Town of Hopkinton has an endless supply of revenue they can tap and if you don’t pay up they will just take your house.

  13. Sadly I read that the town just paid the bank to stop payment on a check that was already voided? I know the fee ($25?) isn’t a lot nor was the $200 but it is a symptom of the larger issue that HopNews highlighted well, especially coupled with other stories of possible employee embezzlement and more issues of town finances. We are in a crisis and need leadership to right the ship. We need to trust our leaders to do the job we placed in their hands (i.e. Police Chief) without interference (i.e. BOS) and if we want to make changes for our future, work together not against. There are many financial issues currently and more to come and it is going to be a difficult next 20 years. And for the record, I believe there was no fraud as the check was not presented nor was it intended to be, if cashed a totally different situation.

  14. As someone who regularly submits invoices for vendor payment, I was surprised to see no approval required. My experience is that submitted invoices are checked for available funds, and that town staff reach out regarding invoices that have been submitted directly to the town to ask if the invoice is for work I manage and for my approval. For Community Preservation Committee work, two approvals are needed. I suspect the event in this article is a one-off associated with the accounting office being short staffed. That said, I did not like the generic response from the SB and feel that steps to address the matter should have been identified. A targeted audit might be useful; easy enough to see if invoices have an approval signature. And a clarification of accounting guidelines for town invoice submittal would also probably be good.

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