Fraud, Ethics and Conflict of Interest

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Fraud, Ethics and Conflict of Interest

• United ISDSummer Leadership Academy
• July 31, 2007
• Marta G. Stahl, CPA Internal Auditor

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SAS 99 (Statement on Auditing Standards)

• Requires School Districts to assess the risk of
  fraud and take proactive steps to diminish the
  risk
• Internal Audit sent a self-assessment
  questionnaire spring 2007 to all campuses and
  departments asking about their awareness of fraud
  and internal controls in place to diminish risk.

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Proactive Steps for SAS 99

• Local Policy CAA (Local)
• Conflict of Interest
• DBD Legal/Local/Exhibit
• Educator Code of Ethics
• DH Legal/Local/Exhibit
• Employee Handbook

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Other Policies with SAS 99 in mind

• Board Policies can be accessed at www.uisd.net
  then Board of Trustees tab, then Board Policy
  Manual on general info
• TEA Financial Accountability Resource Guide
  (FASRG) www.tea.state.tx.us/school.finance/audit/r
  esguide12/index.html

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What is Fraud?

• Fraud, unlike an error, is intentional and
  usually involves deliberate concealment of facts.

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Fraud Types

• INTERNAL
• Fraudulent Financial Reporting
• Cooking the Books
• Maintaining multiple sets of books
• Misappropriation of Assets
• Stealing
• Misuse
• Corruption
• Bribery
• Kickbacks
• Conflicts of Interest

• EXTERNAL
• Bid-rigging
• Billing for products not delivered
• Charging for services or products used on another
  job

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Elements of Fraud Fraud Triangle
Opportunity
Fraud Triangle
Rationalization
Incentive/Pressure
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Opportunity

• Absence of internal controls
• ineffective controls
• ability of management to override controls

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Incentive/Pressure

• Reason or pressure to commit fraud
• inability to pay ones bills,
• drug or gambling addiction,
• desire for status symbols house, car, etc.
• need to meet earnings or productivity targets.

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Rationalization

• Justify the crime
• I was only borrowing the money
• I had to steal to provide for my family
• I was underpaid
• I was entitled to the money

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Reduce Risk of Fraud

• Removing any of the 3 components normally
  prevents fraud.
• The easiest one to remove is OPPORTUNITY by
  having a strong system of internal controls!

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CAA (Local) Policy Overview

• Fraud and Financial Impropriety (see CAA for full
  text)
• The District prohibits fraud and financial
  impropriety in the actions of its trustees,
  employees, vendors, contractors, consultants,
  volunteers and others seeking or maintaining a
  business relationship with the District.

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CAA (Local) Policy Overview

• Definition and prohibition of fraud and financial
  improprieties
• Requires prompt reporting, investigation, and
  follow-up of suspected fraud

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CAA (Local) Policy Overview

• Definition (see CAA for full text)
• Shall include but not be limited to
• Forgery or unauthorized alteration of any
  document
• Misappropriation of funds, or other District
  assets, including employee time
• Impropriety in the handling of money

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CAA (Local) Policy Overview

• Reporting (see CAA for full text)
• Any person who suspects fraud or financial
  impropriety in the District shall report the
  suspicions immediately to any supervisor, the
  Superintendent or designee, the Board President,
  or local law enforcement.

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CAA (Local) Policy Overview

• Responding (see CAA for full text)
• Shall promptly investigate reports of potential
  fraud or financial impropriety
• Shall take or recommend appropriate disciplinary
  action, which may include termination

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Educator Code of Ethics

• The Educator Code of Ethics applies to all School
  District Employees.
• Standard professional practice conduct
• Campuses/Depts should review as part of employee
  training done at beginning of school year

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Employee Handbook

• Incorporates policies CAA and DBD
• Includes Educator Code of Ethics
• Employees acknowledge receipt of handbook with a
  signed form

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Tone at the Top

• Set an ethical tone at the top - conduct your
  own activities on a high ethical level
• Far more powerful than what is stated or preached
  are the actions demonstrated and reinforced by
  those at the top
• Maintain a culture of honesty and high ethics -
  clearly communicate to employees the behavior
  that is expected of them

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Conflict of Interest

• A potential conflict of interest exists for
  employees who make job-related decisions that
  would allow them to give preference to a vendor
  in exchange for anything of excessive personal
  benefit to themselves, family, or friends.

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Conflict of Interest Situations

• accepting excessive gifts from vendors,
• having ownership in a significant part of another
  company or business that is a vendor of UISD, or
• having close or family relationships with
  vendors.
• Loss is dollars needlessly spent on overpriced or
  unnecessary goods or services

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Why complete one?

• Required by board policy
• Over 5,000 employees difficult for Purchasing
  Dept. to be aware of all employee/vendor
  relationships
• Create awareness

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Conflict of Interest Form

• Should be completed at least annually, or when it
  occurs
• To be completed by employees in a position to
  affect a financial decision involving the
  business entity or real property
• Board completes one and is found on UISD web site

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Conflict of Interest Form

• Complete by August 31, 2007
• Supervisor should sign off
• Send completed forms to Purchasing Dept. Keep a
  copy
• Affidavit only required for yes response when
  employee is the owner and should be notarized

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Who will complete a form?

• Campuses
• Principals and Magnet Deans
• Asst. Principals
• Secretary/Bookkeeper
• Budget Technician
• Club sponsors thru SAF training (send only those
  with a yes)
• Any others who make a purchasing decision

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Who will complete a form?

• Management Team
• Departments
• Executive Directors
• Directors and the Equivalent
• Coordinators
• Secretaries with Purchasing Responsibility

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Who will complete a form?

• Committees that review bids
• Purchasing Department
• Accounting Department
• Federal Programs Department
• Any other individuals with purchasing
  responsibility

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Immediate Family Defined

• DEC Local The term shall include
• Spouse
• Son or daughter,
• Parent, step-parent, parent-in-law .
• Sibling, step-sibling, sibling-in-law
• Grandparent and grandchild

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DBD (Local) Policy Overview

• Disclosure (see DBD for full text)
• An Employee shall disclose to his or her
  immediate supervisor a personal financial
  interest, a business interest, or any other
  obligation or relationship that in any way
  creates a potential conflict of interest

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Conflict of Interest Form 1/3

• 1. Do you or someone in your immediate family (as
  defined by DEC local policy) own a business or
  have an interest in a business that has a vendor
  relationship with United Independent School
  District? Yes_______ No_______
• Name of business and relationship
  _________________________________________________
• IF YES, PLEASE COMPLETE THE AFFIDAVIT
  DISCLOSURE OF SUBSTANTIAL INTEREST IN A BUSINESS
  ENTITY.
• 2. Do you or someone in your immediate family (as
  defined by DEC local policy) have an interest in
  real property for which it is reasonably
  foreseeable that the UISD Boards action might
  have a special economic effect on the value of
  the property distinguishable from its effect on
  the public?
• Yes_______ No_______
• IF YES, PLEASE COMPLETE THE AFFIDAVIT
  DISCLOSURE OF INTEREST IN REAL PROPERTY.

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Conflict of Interest Form 2/3

• 3. Have you ever accepted from a vendor any gift,
  favor, service or other benefit with a retail
  value of more than 25.00 this year? Yes _____
  No _______
• If yes, explain circumstances and disclose name
  of vendor ________________________________________
  ____________________________________________
• 4. If you answered Yes to question number 3,
  did you report the gratuities to your supervisor
  within 72 hours? Yes_______ No_______
• If no, please explain ___________________________
  _______________

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Conflict of Interest Form 3/3

• I HEREBY ACKNOWLEDGE THAT THE ABOVE INFORMATION
  IS TRUE AND CORRECT TO THE BEST OF MY KNOWLEDGE.
  I HAVE RECEIVED A COPY OF POLICY DBD-CONFLICT OF
  INTEREST (LEGAL AND LOCAL) OR AT LEAST HAVE BEEN
  MADE AWARE OF THE POLICY. I AM AWARE THAT I
  SHOULD DISCLOSE TO THE SUPERINTENDENT OR DESIGNEE
  ANY SITUATION THAT INVOLVES A CONFLICT OF
  INTEREST OR POTENTIAL CONFLICT OF INTEREST THAT
  MAY ARISE DURING THE YEAR.
• ______________________________
  ________________________ ______
• Employee Name Signature
  Position/Campus or Dept. Date
• NOTE Failure to complete this form will prevent
  the employee from being authorized to initiate
  and/or approve any purchases within the United
  Independent School District.
• Reviewed by Supervisor Authorized by
  Purchasing Director
• _______________________
  ___________________________
• 
  
  UISD Form 905-003
• 
  
  08-01-2005

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Questions

• Cordy Jackson, Purchasing Director 473-7921
• Marta G. Stahl 473-6252
• Internal Audit Dept.
• Laura Garcia
• Martha Esparza
• Beatriz Gaytan