Did you hear about the co-op chief financial officer who stole $1.3 million by having his co-op make payments to his personal credit card companies? The guy would also troll gas pumps looking for receipts left behind—and then submit them as his own.

Steve Dawson wasn't joking when he told that story recently. Dawson is a CPA and CFE—certified fraud examiner—who's spent the last three decades auditing electric cooperatives.

As head of the Lubbock, Texas-based Dawson Forensic Group, Dawson believes it's board members—more than anyone at a co-op—who are in the top position to affect fraud prevention. "We can't pass off that responsibility," he recently told a group of directors.

There's a common misconception that the annual external audit will detect fraud. Dawson said that's not what it's designed to do, and he noted that the Association of Certified Forensic Examiners found that only 4 percent of frauds were initially detected that way in 2016.

As for who's perpetrating frauds, Dawson said it's probably the person you'd least suspect.

"We have to adopt a mindset that it's not just the evil people," he said.

Ninety-five percent of suspects Dawson has investigated and turned over for prosecution involve "need-based fraud," which he describes as good people in a financial jam who convince themselves that what they're doing isn't wrong.

Another 4.5 percent he called the "truly greedy" who "wake up every morning with the goal of getting as much as they can out of their employer." The remainder he called "pathological."

"Those are truly sad cases," Dawson said.

Dawson said co-op fraud policies should make clear that fraud will be prosecuted to the fullest extent of the law—and he urged directors to do just that.

"Do it the same each time," said Dawson. "Because if you don't, everybody knows that you didn't. And then your policies are worthless."

Steve Dawson has prepared a sample fraud policy (PDF) and a sample fraud reporting policy (PDF). Please note that NRECA has not reviewed these, nor does NRECA endorse them.