The certified public accountant who first flagged widespread financial irregularities at the Prichard Water and Sewer Board has broken his silence, describing the case in blunt terms: the largest fraud he has encountered in nearly three decades of work in governmental finance.
The accountant, who spoke on condition of anonymity, was originally brought on by the board in June 2021 to help with financial analysis and bond consulting work, not to conduct a formal audit. That changed in January 2022, when three board members asked him to dig into the board’s credit card statements covering a nearly three-year stretch from December 2018 through October 2021.
In reviewing the transactions, the accountant said he applied what is known in accounting and legal circles as the “reasonable person standard,” a test used to determine whether a decision or action was legitimate given the circumstances at the time. Courts frequently rely on the standard to evaluate not just the outcome of a decision, but the process behind it.
“In essence, I asked would a reasonable person make these credit card transactions,” the accountant said. He concluded that many of the charges brought to the board’s attention did not meet that test and ran afoul of guidance issued by the Alabama Ethics Commission.
When board members pressed him on how the spending could have gone unchecked for so long, the accountant pointed to a breakdown in the most basic safeguards of financial oversight. He said the board lacked proper segregation of duties, meaning a single individual was able to control assets, authorize transactions and then approve those same transactions without independent review. He also said the board’s fiscal services department failed to flag or report the questionable charges as they occurred.
Although two board members eventually filed ethics complaints over the spending, the accountant said the rest of the board fell short of its core obligations, including the duty of care, the duty of obedience and the duty of loyalty that members owe to the public bodies they oversee.
He also raised concerns about the outside CPA firm the board had hired to conduct its annual audits, saying that firm did not adequately assess the risk of fraud. According to board members he interviewed, the auditing firm never circulated a fraud risk questionnaire, a standard tool used to ask officials whether they had been notified of, or suspected, fraudulent activity within the organization.
The accountant said his findings so far represent only a fraction, roughly 20 percent, of what he believes could ultimately be a fraud scheme totaling $1.5 million or more. Given the scope of the spending and the apparent absence of internal checks, he said the case could eventually give rise to criminal charges ranging from embezzlement to mail fraud, wire fraud and credit card fraud.
“In my 27 years in governmental finance, this is the biggest case of fraud I have ever seen,” he said. “The residents of the City of Prichard deserve better.”
The Prichard Water and Sewer Board provides water and sewer service to residents across the city and has faced mounting scrutiny over its financial practices in recent months. The board’s handling of public funds is expected to remain under close watch from both city officials and state authorities as the review of its spending continues.