“Just in Case” Thinking: Lessons From a Public Agency Embezzlement Scandal
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By JoAnne Speers
March3 3, 2023
In the waning days of 2014, police arrested a former City of Pasadena analyst on charges of embezzling millions in public money over the course of some 11 years. California’s local government community was stunned, not just by the size of the crime but that it occurred in a city with a history of good management and well-regarded elected officials and staff.
Much collective head scratching occurred: How could this have happened? And now that some time has passed: what can other public agencies learn from what did happen?
Relatively Small Transgressions Add Up Over Time
The way the former staffer accomplished his feat was not particularly clever. On a regular basis, he created false invoices for the program he supervised. Sometimes he forged approval signatures; sometimes his paperwork was sloppy and incomplete.
What was remarkable is how this was allowed to happen—repeatedly—over such a considerable period. Many in the community—elected officials, community members and the media—pointedly asked this same question.
Predictably Flawed Assumptions
A task force the city council convened to advise the city found that a key problem was “a climate of complacency.” The Task Force observed that this complacency resulted in internal control processes being “at best disregarded.”
What might have fostered such a “climate of complacency”? Behavioral ethics—the science that concerns itself with how humans make decisions—offers some possible insights.
One dynamic, as already noted, is the city had a reputation for being well-managed and having good leadership. As one city resident lamented “People don’t expect corruption and malpractice here.”
Behavioral science tells us that humans tend to overestimate our abilities, including our ability to act ethically in situations (psychologists call this overconfidence bias).
A related dynamic is optimism bias, which causes us to regularly underestimate the likelihood of negative events (and overestimate the likelihood of positive ones) in the future.
Viewed through these lenses, the sense that “embezzlement could never happen here” is very human. Like most psychological biases, however, these human tendencies predictably lead to error prone decision-making.
Another dynamic might have been at play: the analyst was an unlikely villain. As one employee observed, the embezzler was a devout, churchgoing, family man that everyone liked. Investigators concluded the city gave too much responsibility to someone viewed as a trusted employee.
Ordinarily, trust is considered a good thing in an organization. However, as behavioral ethicist Max Bazerman points out in Complicit: How We Enable the Unethical and How to Stop, trusting others to do their work well or honestly is a form of decision-making shortcut. If that trust is misplaced, we can be complicit in wrongdoing, even if that is not our intent.
Bazerman acknowledges that not trusting one team’s members can have costs. Questioning the technical underpinnings or veracity of someone’s work can certainly cause offense. As social creatures who care in preserving relationships, that cost can discourage us from pressing an issue. This is particularly if the organizational climate does not support doing so.
Takeaways
Psychologist Tali Sharot concludes her TED talk on optimism bias with the simile of penguins thinking they can fly. She notes we do not want to discourage positive thinking, but the smart penguin manages the risk that it might be wrong by wearing a parachute “just in case.”
Having internal controls and other policies designed to prevent and detect wrongdoing is the organizational equivalent of a parachute. However, also critical are the messages leaders send about the importance of observing such policies, even if they trust their employees and think the likelihood of wrongdoing is very low.
The council’s task force implicitly faulted the city’s management in this regard. Its topline recommendation was for management to set a stronger and consistently communicated message about the importance of complying with internal controls.
With the benefit of hindsight for this public agency, the case for the importance of complying with internal control processes (and other processes designed to protect the public’s trust) is evident. The magnitude of the harm and the consequences to those even indirectly involved provide a useful object lesson for other organizations and their leaders.
The embezzler received a stiff jail sentence and was ordered to pay millions in restitution.
Others in the city, however, also suffered serious consequences, even though they apparently had no knowledge of what was going on. The finance and public works directors were fired for not having prevented the fraud (and still are dogged professionally by the fact that it happened on their watch). The city manager left shortly after the embezzlement came to light.
Perhaps the worst consequence of all for the organization as a whole: The community now knows that corruption and malpractice can and did happen in their city hall. To its credit, the city ultimately recovered most of the funds in an insurance settlement—insurance being another example of a necessary, but possibly insufficient, parachute.
However, the sad fact remains that the damage to the public’s trust and confidence in the city will take years to fade, if it ever does.
Pasadena’s experience should prompt all organizational leaders to ask (to borrow a phrase): What color(s) are my organization’s parachutes?
Author: JoAnne Speers, MPP and JD, trains and consults on public service ethics as principal of S2 Ethics Strategies. She previously served as chief executive of the Institute for Local Government, where she developed and directed its ethics program. JoAnne has also taught ethics as an adjunct professor. Her email is jspeers@strategies4ethics.
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“Just in Case” Thinking: Lessons From a Public Agency Embezzlement Scandal
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By JoAnne Speers
March3 3, 2023
In the waning days of 2014, police arrested a former City of Pasadena analyst on charges of embezzling millions in public money over the course of some 11 years. California’s local government community was stunned, not just by the size of the crime but that it occurred in a city with a history of good management and well-regarded elected officials and staff.
Much collective head scratching occurred: How could this have happened? And now that some time has passed: what can other public agencies learn from what did happen?
Relatively Small Transgressions Add Up Over Time
The way the former staffer accomplished his feat was not particularly clever. On a regular basis, he created false invoices for the program he supervised. Sometimes he forged approval signatures; sometimes his paperwork was sloppy and incomplete.
What was remarkable is how this was allowed to happen—repeatedly—over such a considerable period. Many in the community—elected officials, community members and the media—pointedly asked this same question.
Predictably Flawed Assumptions
A task force the city council convened to advise the city found that a key problem was “a climate of complacency.” The Task Force observed that this complacency resulted in internal control processes being “at best disregarded.”
What might have fostered such a “climate of complacency”? Behavioral ethics—the science that concerns itself with how humans make decisions—offers some possible insights.
One dynamic, as already noted, is the city had a reputation for being well-managed and having good leadership. As one city resident lamented “People don’t expect corruption and malpractice here.”
Behavioral science tells us that humans tend to overestimate our abilities, including our ability to act ethically in situations (psychologists call this overconfidence bias).
A related dynamic is optimism bias, which causes us to regularly underestimate the likelihood of negative events (and overestimate the likelihood of positive ones) in the future.
Viewed through these lenses, the sense that “embezzlement could never happen here” is very human. Like most psychological biases, however, these human tendencies predictably lead to error prone decision-making.
Another dynamic might have been at play: the analyst was an unlikely villain. As one employee observed, the embezzler was a devout, churchgoing, family man that everyone liked. Investigators concluded the city gave too much responsibility to someone viewed as a trusted employee.
Ordinarily, trust is considered a good thing in an organization. However, as behavioral ethicist Max Bazerman points out in Complicit: How We Enable the Unethical and How to Stop, trusting others to do their work well or honestly is a form of decision-making shortcut. If that trust is misplaced, we can be complicit in wrongdoing, even if that is not our intent.
Bazerman acknowledges that not trusting one team’s members can have costs. Questioning the technical underpinnings or veracity of someone’s work can certainly cause offense. As social creatures who care in preserving relationships, that cost can discourage us from pressing an issue. This is particularly if the organizational climate does not support doing so.
Takeaways
Psychologist Tali Sharot concludes her TED talk on optimism bias with the simile of penguins thinking they can fly. She notes we do not want to discourage positive thinking, but the smart penguin manages the risk that it might be wrong by wearing a parachute “just in case.”
Having internal controls and other policies designed to prevent and detect wrongdoing is the organizational equivalent of a parachute. However, also critical are the messages leaders send about the importance of observing such policies, even if they trust their employees and think the likelihood of wrongdoing is very low.
The council’s task force implicitly faulted the city’s management in this regard. Its topline recommendation was for management to set a stronger and consistently communicated message about the importance of complying with internal controls.
With the benefit of hindsight for this public agency, the case for the importance of complying with internal control processes (and other processes designed to protect the public’s trust) is evident. The magnitude of the harm and the consequences to those even indirectly involved provide a useful object lesson for other organizations and their leaders.
The embezzler received a stiff jail sentence and was ordered to pay millions in restitution.
Others in the city, however, also suffered serious consequences, even though they apparently had no knowledge of what was going on. The finance and public works directors were fired for not having prevented the fraud (and still are dogged professionally by the fact that it happened on their watch). The city manager left shortly after the embezzlement came to light.
Perhaps the worst consequence of all for the organization as a whole: The community now knows that corruption and malpractice can and did happen in their city hall. To its credit, the city ultimately recovered most of the funds in an insurance settlement—insurance being another example of a necessary, but possibly insufficient, parachute.
However, the sad fact remains that the damage to the public’s trust and confidence in the city will take years to fade, if it ever does.
Pasadena’s experience should prompt all organizational leaders to ask (to borrow a phrase): What color(s) are my organization’s parachutes?
Author: JoAnne Speers, MPP and JD, trains and consults on public service ethics as principal of S2 Ethics Strategies. She previously served as chief executive of the Institute for Local Government, where she developed and directed its ethics program. JoAnne has also taught ethics as an adjunct professor. Her email is jspeers@strategies4ethics.
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