Fraud: What’s It All About?

Ethics and Fraud in the Workplace

January 19, 2012

Sam Hartline Principal Auditor

UCSB Audit and Advisory Services

Agenda

What is fraud?

Identifying Fraud in the Workplace

Minimizing Fraud

UC Whistleblower

What is Fraud?

“…any intentional act or omission designed to deceive others and resulting in the victim suffering a loss and/or the perpetrator achieving a gain.”

“The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.”

Source: Association of Certified Fraud Examiners (ACFE)

What Actions Constitute Fraud?

Fraud Triangle

Source: ACFE

Incentive/Pressure•Habitual criminal who steals for the sake of stealing

•Personal prestige, goal achievement

•Morally superior, justified in making others victims

•Desperate need for money•Vices such as gambling/drugs

Attitude/Opportunity

Weak internal controls

Circumvention of internal controls

The greater the position, the greater the trust and exposure to unprotected assets

“Most Trusted Employee”

Top 10 Rationalizations for Committing Fraud

I need it more than the other person.

I’m borrowing and will pay it back later.

Everybody does it.

The University is so big that it won’t even be missed.

Nobody will get hurt.

Top 10 Rationalizations for Committing Fraud

I deserve it.

It’s for the greater good.

I’m not paid enough.

It’s just part of the job.

I’m not gaining personally.

…and a bonus # 11

It’s legal!

Conditions that Contribute to Fraud

Poor internal controls

Inadequate Pay Low Loyalty Rigid Rules Poor Promotion

Opportunities Pressure to

Perform

Lack of Recognition

Unreasonable Budget Expectations

Reactive vs. Proactive

Hostile Work Environment

Poor or No Training Inadequate

Staff/Resources

Usually work their crimes alone.

Tend to be compulsive (gambling, abusing alcohol/drugs).

Spend money freely (their own and/or the University’s).

Rationalize their thefts by thinking they are merely “borrowing.”

Characteristics of Classic Embezzlers

Tend to repeat their crime.

Exploit weaknesses in internal controls to cover up their crimes.

Have ready access on the job to cash or its equivalent.

Characteristics of Classic Embezzlers

Wheeler/Dealer Dominating Personality Living Beyond Means Poor Money

Management

Poor or “Too Good to Be True” Performance

Dissatisfied Worker Unable to Relax No Vacations or Sick Time Unusual or Change in

Personality (alcohol, drugs, sleep, irritable, defensive, argumentative)

Source: Harvard Internal Audit Home Page

Lifestyle and Personality Red Flags

Bad “Tone at the Top”

No Communication of Expectations

Too Much Trust in Key Employees

Lack of Proper Authorization Procedures

Lack of Attention to Detail

Poor Segregation of Duties

Tendency Toward Crisis Management

Organizational Red Flags

Accountability and Control Red FlagsLack 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

Relaxed Management Style

Poor System Design

Inadequate Training

Source: Harvard Internal Audit Home Page

Actions to Minimize Fraud

12

34

5

6

Tone at the Top

Education &

Training

Integrity Risk &

Controls

Reporting &

Monitoring

Proactive

Detection

Investigation & Follow-up

Ask Yourself : What are the weakest links in my

department’s internal controls? What deviations from acceptable

business practices are possible? How can I get a check issued or

get my hands on cash, property, or information?

What accounting documents are easiest to access and forge?

Fraud Opportunity Checklist

UC Whistleblower Responsibilities

Locally Designated Official Associate Vice Chancellor of Administrative Services Ron

Cortez

Investigations Workgroup Convenes on a monthly bases to receive status

updates on active cases from the Whistleblower Investigator.

UC Whistleblower Resources

UC Whistleblower Hotline (1-800-403-4744)

http://universityofcalifornia.edu/hotline

Whistleblower Policies/Informationhttp://ucwhistleblower.ucop.edu

http://www.whistleblower.ucsb.edu/whistleblowerprocedures.html

UC Whistleblower Protection

Whistleblower Protection Policies/Information

http://ucwhistleblower.ucop.eduhttp://www.whistleblower.ucsb.edu/

Protection from Retaliation ContactsHuman ResourcesAcademic PersonnelLocally Designated Official, orYour Supervisor

What is your responsibility?

Recognize and be alert to informal communications of allegations (protected disclosures)

Notify one of the following, orally or in writing Locally Designated Official Appropriate campus administrator(s) Campus Investigative Unit(s) UC Whistleblower Hotline

Act promptly

Maintain confidentiality

Consult Whistleblower policies/information http://ucwhistleblower.ucop.edu

What to do when confronted with a whistleblower allegation:

What NOT to do when confronted with a whistleblower allegation:

Dismiss the matter out of hand.

Launch your own investigation.

Confront the accused or otherwise tip them off.

Disclose the matter to any unnecessary parties.

Try to settle or resolve the matter yourself.

“Relatively few occupational fraud and abuse offenses are

discovered through routine audits. Most Fraud is

uncovered as a result of tips and complaints from other

employees.”Source: ACFE

Association of Certified Fraud Examiners Conclusion on Detecting Fraud:

ConclusionConclusion Be Aware of Your Environment

Take Steps to Minimize Fraud

Be Aware of Fraud Red Flags

Consider Design When Planning Controls

Key Contacts John Kushwara, Whistleblower Complaint Investigator – Ext.

4335

Ron Cortez, Associate Vice Chancellor of Administrative Services – Ext. 8291

Robert Tarsia, Acting Audit Director– Ext. 4080

Jim Corkill, Controller and Director, Accounting Services & Controls – Ext. 5882

Cindy Dougherty, Academic Personnel Director – Ext. 8332

Tricia Hiemstra, HR Director – Ext. 4832

Dustin Olson, Chief of Police – Ext. 4151

Questions/Comments?