Based on a NYT article of May 17, 2016 there soon may be enhanced disclosure in the public domain of an alleged financial fraud storm breaking out over the Covenant House, a nonprofit organization. An NYC department (Youth and Community Development – a public sector agency) is the nominal and immediate victim. However, the ultimate stakeholders are you and me. Three items to consider:

1. The investigation was allegedly triggered by an anonymous complaint to CH’s internal hotline. This is a common catalyst for the detection and reporting of financial crimes, especially fraud. You will likely see both this type of discovery and the not too vigorously reported but highly organized resistance to empowering this type of discovery (beyond lip service) for decades to come. It’s too embarrassing (i.e., both ‘roguish fraud’ and the ‘roguish’ reporting / whistle-blowing of it).
2. The basis for public sector fund reimbursement was allegedly intentionally inflated (i.e., number of individuals served by the nonprofit organization). Incentive structures tend to overwhelm ordinary mortals and their ethics, especially where inspection and oversight is inadequate or sporadic. You will likely see intentional overstatements of bases for reimbursement from independent contractors under public sector contracts for decades to come.
3. The (artificial) person responsible for directing and conducting a follow-on investigation on behalf of the CH boards is a prominent private (proprietary) sector law firm. Whether this investigation will be complete in all material respects is an issue that suspicious and reasonable minds may debate. However, large and prominent proprietary law firms have been fixing and cleaning up after ‘roguish frauds’ for decades, and this pattern should be expected to continue for decades to come. Also, NYC will likely conduct its own investigation. Whether investigations are better done by public sector agencies than private sector persons is also an issue that will survive this particular set of allegations of financial fraud.

In light of the unsurprising nature of these items and their propensity to recur, I could describe the repeating fact-pattern as an inevitable product of human nature, except that it clearly isn’t. Few individuals commit major frauds, and the overwhelming majority of these are preventable and/or timely detectable through robust inspection and oversight. (Fraud may be intentional, but allowing the conditions for its development such as incentive structures not adequately controlled through inspection and oversight might be merely an ‘oversight.’) However, this remedy has a financial cost – a burden and detriment that too many policy- and decision-makers elect not to bear. Austere budgets for inspection and oversight exchange medium- and long-term financial integrity for short-term savings, a swap from which stakeholders such as you and me do not benefit.