GRANT FRAUD AWARENESS GRANT FRAUD AWARENESS SA Laura Rousseau U.S. Department of Justice Office of Inspector General Fraud Detection Office

What is the DOJ OIG?  Responsibility & Authority  Focus  Components

American Recovery and Reinvestment Act of 2009  $787 B. includes approximately $400 B. for grants / cooperative agreements, $60 B. for procurements, $327 B. for tax cuts and other federal spending programs  Emphasis: Job Creation; Transparency; Accountability; and Oversight  Multiple Oversight Mechanisms: 68 Federal OIG’s, Recovery Accountability and Transparency Board / Recovery.gov; OMB; GAO; 56 State Administering Agencies

Feb 18, 2009 OMB Guidance – Disclosure Requirement Agencies must “[i]nclude the requirement that each grantee or sub-grantee awarded funds made available under the Recovery Act shall promptly refer to an appropriate inspector general any credible evidence that a principal, employee, agent, contractor, sub-grantee, subcontractor, or other person has submitted a false claim under the False Claims Act or has committed a criminal or civil violation of laws pertinent to fraud, conflict of interest, bribery, gratuity, or similar misconduct involving those funds.”

What is Grant Fraud?

Fraud Assumptions  It Happens  Prevent / or Detect it Early

Fraud’s Consequences  Organizational Reputation / Survival  Administrative  Civil  Criminal

The Keys to Preventing, Detecting and Stopping Fraud: PROFESSIONAL SKEPTICISM & COMMUNICATION

Grant Process Application Budget Assurances Grant Conditions Eligibility Performance Draw Downs Monitoring Gov’t Management FSR Certifications INTEGRITY BASED SYSTEM OMB Circulars

Process Safeguards  Grant Management / Desk Audits  Grantor Monitoring  OIG Audits  A-133 / Single Audit Act

Mistakes Gross Negligence Criminal Fraud

Common Grant Fraud Schemes 1. Conflicts of Interest 2. “Lying” About the Use of Funds 3. Theft

Conflicts of Interest  Typical Issues:  Related Party Transactions (Grantee or Board Member)  Grant / Sub Grant Award Decisions  Consultants: Who, What, How, How Much?  Grant Writer Fees / Contingent Fees  Know your Grantee Conflict of Interest Statement

Chapter 3, OJP Financial Guide “No official or employee of a State or unit of local government or a nongovernmental recipient/subrecipient shall participate personally through decisions, approval, disapproval, recommendation, the rendering of advice, investigation, or otherwise in any proceeding, application, request for a ruling or other determination, contract, award, cooperative agreement, claim, controversy, or other particular matter in which award funds (including program income or other funds generated by federally funded activities) are used, where to his/her knowledge, he/she or his/her immediate family, partners, organization other than a public agency in which he/she is serving as an officer, director, trustee, partner, or employee, or any person or organization with whom he/she is negotiating or has any arrangement concerning prospective employment, has a financial interest, or has less than an arms- length transaction.”

Chapter 3, OJP Financial Guide “In the use of agency project funds, officials or employees of State or local units of government and nongovernmental recipient/subrecipients shall avoid any action, which might result in, or create the appearance of: Using his or her official position for private gain; Giving preferential treatment to any person; Losing complete independence or impartiality; Making an official decision outside official channels; or Affecting adversely the confidence of the public in the integrity of the government or the program.”

Preventing Conflicts of Interest  Educate every employee and board member on the defined COI prohibitions.  Ensure procurement procedures are well- designed and followed.  Consultants: Who, What, How, How Much?  Document the facts and have another party review them.  If in doubt about a potential COI situation, seek written guidance from the grantor.  A fully disclosed and approved potential COI probably ceases to be a COI.

“Lying”  Typical Issues:  Labor Hours / Wages; Types of Equipment / Supplies / Events; Indirect Cost Rates; “Level of Effort”  Program Income / Matching Funds  Other Grants Fund the Same Program  Political changes to use of funds  Financial Certifications & Draw Downs must be supported with evidence such as receipts, expense reports or cancelled checks.  Progress reports must be factually accurate.  Signed grant agreement is a contract: changes to budgets and program must be approved.

Preventing “Lying” About the Use of Funds  Ensure interested parties read the grant agreement; maintain written correspondence with grantor about any program or budget changes.  Keep well-organized and complete accounting books and records (consider using financial software or spreadsheets).  Practice logical and supportable expense recording procedures– time sheets, draw down calculations, etc...  The person who signs grant award, FSR’s and other documents is personally liable– support all assertions.  Pay close attention to: indirect cost rates; program income; multiple awards; expiring money.  Fully disclose problems with grantor and seek assistance.

Theft  Single most common risk for every entity– It can and does happen.  Poor or no internal controls = Virtually inevitable theft.  “Trust” is not part of the equation.  Checks routinely written to employees as “reimbursement” of expenses should be carefully analyzed.  Gift Cards / ATM / Debit / Credit Cards are easily abused.

Preventing Theft  Ensure internal controls are well-designed and properly implemented and tested.  Separation of Duties: receipt, disbursement, recording, custody, & audit / review functions should be done independently.  Consider using a fiscal agent or bookkeeper.  Carefully control debit / credit / gift cards and checks.  Pay close attention to: “payroll advances”; employee reimbursement checks; IRS tax withholding payments & other payroll issues; past-due vendor invoices.  To increase deterrence and detection, educate every employee, board member, and coalition partner about this risk.

Questions? SA Laura Rousseau