Fraud and the Workplace

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Fraud and the Workplace

• Insert audience, date, etc.

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Fraud and the Workplace

• After this workshop you will have an awareness
  of
• What fraud is and the impact it has
• The characteristics of fraudsters
• The indicators of potential fraud
• The need to be alert to the possibility of fraud
  and what to do if you suspect it

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OCCUPATIONAL FRAUD

• The use of ones occupation for personal
  enrichment through the deliberate misuse or
  misapplication of the employing organizations
  resources or assets.
• Source Association of Certified Fraud Examiners

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For Fraud to Exist
Non-Shareable Problem (Incentive / Pressure)
FRAUDTRIANGLE
Opportunity
Rationalization
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An Estimated 5 of 2006 U.S. Gross Domestic
Product
The Cost of Fraud
The Median Loss Caused by Fraud was 159,000
Costs U.S. Organizations an Estimated 652
Billion Annually
At Harvard?
Source Association of Certified Fraud Examiners,
2006
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Veritas?

• HUID anyone
• The vendor family
• Non-deposits
• Bogus bids
• How do you pay for your new tires?
• What do we not know?

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The Indirect Costs of Fraud

• Loss of Productivity
• Increased Government Intervention
• Legal Costs
• Damaged Careers and Reputations
• Institution Reputation/Goodwill
• Inability to Secure Funding or Donations

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Detection Sources

• Tip-off - 34.2
• By Accident - 25.4
• Internal Audit - 20.2
• Internal Controls - 19.2
• External Audit - 12.0
• Notified by Police - 3.8
• Source Association of Certified Fraud Examiners,
  2006
• Note The sum of the percentages is greater than
  100 as in some cases more than one detection
  source applied.

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Fraud and the Law

• Focus on
• False Claims Act
• Qui Tam Suits thru 09/06, 5,514 cases, 11B in
  settlements, Relator share of 1.8B
• 511.3M - FY07 Harvard University total
  expenditures on federal awards
• Source 1. US Department of Justice. 2. HU OSP
  FY07 Annual Report

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What do people steal?

• Time
• - Own/Other
• Cash/Equipment/Material/Supplies
• Space, Utilities, Use of Equipment, Materials,
  Supplies
• Intellectual Property
• Information - For Personal Gain
• Name/Reputation

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Characteristics of Fraudsters

• Usually work their crimes alone
• Tend to be compulsive (gambling, abusing
  alcohol/drugs)
• Spend money freely (their own and/or HUs)

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Characteristics of Fraudsters

• Rationalize their thefts by thinking they are
  merely borrowing or the money is owed to them
• Tend to repeat and escalate their crime
• Exploit weaknesses in internal controls to cover
  up their crimes
• Have ready access on-the-job to cash or its
  equivalent

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Fraud Red Flags

• Lifestyle and Personality
• Organizational
• Financial Documents
• Accountability and Control

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Fraud Red Flags

• Lifestyle and Personality
• Close Customer/Vendor Relationship
• Unusual or Change in Personality (alcohol, drugs,
  sleep, irritable, defensive, argumentative)
• Too Good to Be True Performance
• Excessive Overtime

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Fraud Red Flags

• Lifestyle and Personality (cont)
• Living Beyond Means
• Poor Money Management
• Dissatisfied Worker
• Unable to Relax
• No Vacations or Sick Time

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Fraud Red Flags

• Organizational
• No Communication of Expectations
• Too Much Trust in Key Employees
• Lack of Proper Authorization Procedures
• Lack of Attention to Detail
• Changes in Organizational Structure
• Tendency Toward Crisis Management

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Fraud Red Flags

• Financial Documents
• Missing Documents
• Alteration of Documents
• Documents Not Numerically Controlled
• Questionable Handwriting or Authorization
• Duplicate Payments
• Unusual Billing Addresses or Arrangements

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Fraud Red Flags

• Financial Documents (Cont)
• Address of Employee Same as Vendor
• Duplicate or Home Made Photocopied Invoices
• Excessive Checks to Cash
• Pattern of Second Endorsements on Payroll Checks
• Excessive Spoilage/Damaged Goods
• Failure to Reconcile Bank Accounts

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Fraud Red Flags

• Accountability and Control
• Lack of Separation of Duties
• Lack of Physical Security and/or Key Control
• Weak Links in Chain of Controls and
  Accountability
• Missing Independent Checks on Performance
• Lax Management Style
• Poor System Design
• Inadequate Training

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Fraud Opportunity Checklist

• ASK YOURSELF
• How can I get a check issued or get my hands on
  cash?
• What accounting documents are easiest to access
  and forge?
• What deviations from acceptable business
  practices are possible?
• How much review and supervision goes on to deter
  and detect fraud?
• What are the weakest links in my departments
  internal control?

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Fraud and Responsibilities

• Essential Points
• Everyone has a responsibility for internal
  controls and ethical behavior.
• Policies are important to the control
  environment your responsibility to carry out
  policy directives is essential.
• Compliance with policy supports compliance with
  regulations
• Be aware of your environment the risks and
  controls.
• The University has training programs to help you
  learn and understand policies.
• Ask questions to help maintain a control
  environment.
• Use resources to address concerns.
• Having good internal controls will make your job
  easier!

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Fraud and Responsibilities

• If you suspect fraud
• DO
• Convey your suspicions to someone with
  appropriate experience and authority
• Deal with the matter promptly
• Cooperate fully with all investigations
• DO NOT
• Be afraid of raising your concerns
• Accuse any individual directly
• Try and investigate the matter yourself
• Tell anyone about your suspicions other than
  those with the appropriate authority

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University Resources

Office Phone University Compliance
HELPLINE (877) 694-2ASK
http//vpt-web.harvard.edu/rmas/5_compliance/helpl
ine.html University Ombuds Office (617)
495-7748 http//harvie.harvard.edu/working/solving
workplaceproblems/university-ombuds.shtml Office
of Human Resources [phone]http//atwork
.harvard.edu/ Office of the General Counsel
[phone]http//ogc.harvard.edu/ Risk
Management Audit Services [phone]
http//vpf-web.harvard.edu/rmas/index.html Offic
e of the Controller [phone]http//vpf-
web.harvard.edu/ofs/index.shtml Office of
Sponsored Programs [phone] http//vpf-w
eb.harvard.edu/osr/index.shtml
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Fraud and the Workplace

• Financial Managers Forum 01/16/08