Transcript FRAUD: How to stay in control!

Fraud and Ethics: We must
comply
Presented by:
Elizabeth G. Henry, Internal
Auditor
Laredo Independent School
District
August 6, 2009
Discussion:
 Fraud and ethics
LISD
policies
 Some forms of fraud
in general
 Indicators of fraud –
“Red Flags”
 Cases of fraud
Introduction
 What is fraud?
 How is it found?
 Who is normally involved?
Overview
Fraud is a crime
– Unlike an error, is intentional and usually involves a deliberate
concealment of facts.
Law address different types of fraud
–
–
–
–
–
Insurance
Contracts
Computers
Corruption
Others
Association of Certified Fraud Examiners
Occupational fraud –
The use of one’s occupation for
personal enrichment through the
deliberate misuse or misapplication
of the employing organization’s
resources or assets*
*2008 Report to the Nation on Occupational Fraud and Abuse. Copyright 2008 by the
association of Certified Fraud Examiner’s Inc.
Fraud Triangle
Opportunity
Incentive/
Pressure
Rationalization
Opportunity
Knowledge of weak
controls
Lack of supervision
Belief the employee
won’t get caught
Unethical tone at the
top
Ineffective controls
Incentive/Pressure
Pressure placed on administration /
managers to perform
Excessive gambling habit
Desire for status symbols – house, car,
etc.
Unusually high personal debt
Alcohol or drug problems
Undue family or peer pressure to
succeed
Rationalization
Feeling of insufficient recognition for job
performance
Many employees who commit fraud fully intend
to return the money – however never do
Personal need for more money
Employee feels the district owes them; therefore
they compensate themselves
Board Policies
Follow up and familiarize yourself with the
following:
CAA (Local) Fiscal Management Goals and
Objectives Financial Ethics
CFC (Local ) Account Audits
DH (Local) Employee Standards of Conduct
DH ( Regulation) Code of Ethics and Standards
of Conduct
How can we reduce risk of fraud?
Removing any of the three components normally
prevents fraud
Easiest one to remove is OPPORTUNITY, by
having a strong system of internal controls
What makes us vulnerable?
Lack of segregation of
duties
Untrained personnel
Insufficient funds for
program implementation
Lack of school
management supervision
Lack of internal controls
Management’s thinking
“he/she wouldn’t do that”
Examples of Fraud
Failure to make timely bank deposits
Stealing equipment
Manipulation of collections of accounts
Taking copy paper home
Unauthorized use of credit cards/funds
Alteration/falsification/destruction of
documentation
Pilfering postage stamps
“Red Flags” in School Accounts
Fictitious vendors
Diverting receipts
Altered/missing documentation
Insufficient segregation of duties
Untimely deposits
Non-compliance with established rules
and regulations
Observations:
Campus held fundraisers, however deposited
monies in faculty accounts.
Campus held fundraisers, however deposited
monies in PTO account
School bookkeeper took close to $19,000 in
collection from students
What can we do for prevention?
Provide:
Segregation of duties
Guidance for operations – policies and procedures
Training for personnel handling funds
SUPERVISE! MONITOR!
ADMINISTRATIVE
OPERATIONS
Summary
Know the “Red Flags” of fraud in your area of
responsibility
Be familiar with the types of fraud
TAKE CHARGE – put controls in place for
prevention
District Administration /
Operations
Human Resources – Teachers & other & benefits
Information & Technology Services
Transportation
Purchasing/procurement
Food & Nutrition Services – Cafeterias
Specialists – speech therapist, para’s - pro’s, etc.
Curriculum – Testing, Grades, Teaching
Nurses – health services
Safety and security
Maintenance – custodial and others
Risk Management – insurance
Finance – A/P, A/R, Investments, Payroll
Observations
Secretary altered daughter’s
time cards - reflecting at times
as though she was working,
when in reality she was not
Fraud consequences in
Administrative functions
Personal issues that created pressures
Lack of segregation of duties
Untrained personnel – unfamiliar with
requirements
Opportunity to utilize system weaknesses
– system overrides
Results of Fraudulent Activity
Legal Fees
Increased debt
Loss of
reputation/credibility
Media coverage
Restitution
Arrest
Loss of job
FRAUD ADDS UP!
 Time costs money; consider the
time taken:
Spent devising the fraud scheme
Actively concealing
information/documents
Spent to investigate occurrences
Prove case and discharge
perpetrators
Locate and train replacement
personnel
Steps for Prevention
Management sets the tone Establishes ground rules
Conduct a Review of:
Overall Campus/Department
internal controls – ask yourself –
how strong are they?
Is there a segregation of duties?
Is there adequate
supervision/monitoring?
Acknowledgement
Z I acknowledge that I as an employee of the
Laredo Independent School District have
read and understood this presentation as
well as all related Fraud and Ethics related
policies addressed.
To confirm the completion of the Fraud and Ethics on-line session click on the link below:
http://www.laredoisd.org/departments/internalauditor/confirm.asp
Thank You
If you have any questions, feel free to contact our
department-- Internal Audit Department
Elizabeth G. Henry – [email protected]
– Internal Auditor
Angelica R. Salinas – [email protected]
– Staff Auditor
Roxanna R. Pedraza – [email protected]
– Staff Auditor
1520 Victoria St.
956-795-3402