1. FRAUD, WASTE, AND ABUSE
Brian Forster, Law Enforcement Programs Supervisor, ADECA
Heather Oates, CPA, CGMA, CICA, Senior Auditor, ADECA

2. What is Waste?
The loss or misuse of resources that results from deficient practices, system controls, or decisions.
It is managements responsibility to control waste.

3. What is Abuse?
Abuse involves behavior that is deficient or improper when compared with behavior that a prudent person would consider reasonable and necessary business practice given the facts and circumstances.  Abuse also includes misuse of authority or position for personal financial interests or those of an immediate or close family member or business associate.  Abuse does not necessarily involve fraud, violation of laws, regulations, or provisions of a contract or grant agreement. 

4. WHAT IS FRAUD?
An intentional distortion of the truth in an attempt to obtain something of value. Does not have to result in monetary loss.
A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.

5. PENALTIES OF FRAUD A ban from receiving future funding
Suspension, debarment, and cancellation of current or future grant awards
Administrative recoveries of funds
Civil lawsuits and criminal prosecution
A combination of all or some of these remedies

6. Types of Fraud
Internal Fraud
External Fraud
Fraud Against Individuals

7. Fraud Tree
Obtained from ACFE website

8. Why Does Fraud Occur?

9. Indicators of Grant Fraud
Structure of Recipient Organization and Grant Program
Managers and administrators should closely examine:
Organizational design
Policies and procedures
Staff
Application narratives
Budgets, proposals, and progress reports
Design of project may make it difficult to track and assess
Objectives, metrics, progress, and associated costs
May indicate that a recipient is hiding a failing program
No performance metrics or objectives that have already been completed
Lack of internal controls
Segregation of duties
Unsupervised use of checking accounts, cash, credit/debit cards

10. Indicators of Grant Fraud
Structure of Recipient Organization and Grant Program (cont.)
Questionable financial viability
High % of assets funded by debt or insufficient funds
Using loan to operate
Grant managers should check on subgrant administrative personnel using:
Public records such as local and federal criminal and civil court information
Court judgements
Excluded parties list system
Signs of conflict of interest
Transactions with friends and relatives
Gifts from contractors
Transactions with organizations that several related employees or board members
Failing grant program may indicate misused grant funds

11. Indicators of Grant Fraud
2. Payment Requests or Drawdown of Grant Funds
Drawdowns and frequency of payment requests should be scrutinized as it relates to rules/regulations of the grant project
Recipient who draws down most or all of funds shortly after award may be high risk
Insufficient justification/documentation for drawdowns indicates high risk

12. Indicators of Grant Fraud
2. Payment Requests or Drawdown of Grant Funds (cont.)
Drawdown requests made well after the award periods and final date of the drawdown have ended may indicate that recipients are drawing funds for unallowable expenditures.
Any drawdown made from one grant to cover the costs of another grant program may be unallowable and should be reviewed closely.
Payment requests that exceed expenditures recorded for the same period in the accounting system need closer examination. These types of requests may be for unallowable purposes, or they may indicate that internal controls governing accounting entries and financial reports need improvement.

13. Indicators of Grant Fraud
3. Monitoring Reports and Activities
Recipients not responding to requests for additional information/documentation may be trying to conceal something
Inconsistent/illogical explanations about use of funds may indicate misuse
Unusual financial trends
Suspicious transactions
Reviewing financial trends
Making sure you are familiar with trends that are fraudulent
Salary/compensation that exceed agency approved amounts or exceed compensation for comparable services

14. Indicators of Grant Fraud
3. Monitoring Reports and Activities (cont.)
Grant projects funded by more than one grant may indicate a higher potential risk of fraud, particularly if the funds come from more than one federal or state jurisdiction.
Disclosure statement
Submitted with application
Forgery of signature, receipts, timesheets, and payroll information, and alteration of invoices may indicate fraud.
Unclear, unsupportable, or inconsistent cost rates should be examined closely..

15. Indicators of Grant Fraud
4. Contractors and Consultants
Deficiencies in procurement systems
Policies that do not provide for adequate oversight
Several high dollar transactions with single vendor
Recipients that expend funds on unapproved purchases
Sole source or no bid contracts
Use of generic, nonspecific, or nebulous consultants may present a heightened risk. 

16. Initial Detection of Frauds
Obtained from ACFE 2014 Report to the Nations

17. Mitigating Fraud Risk Preventive Controls
Perception of detection (POD)
Education and Communication (Anti-Fraud Training)
Internal Controls
Ensure an individual’s level of authority corresponds with his/her level of responsibility
Review of transactions
Continuous monitoring

18. Mitigating Fraud Risk Detective Controls Corrective Controls
Tips (i.e. Fraud Hotline)
Job rotations and forced vacations
Draw on external information to corroborate internally generated information.
Formally and automatically communicate identified deficiencies and exceptions to appropriate leadership.
Use results to enhance and modify other controls.
Regular audits
Corrective Controls
Insurance
Fraud Policy

19. Mitigating Fraud Risk
Examine your operations and internal controls to identify fraud risk areas
Implement specific fraud prevention strategies including educating others about the risks.
Maintain internal controls and anti-fraud controls
Ensure all financial and progress reports are adequately supported with appropriate documentation and evidence.
Identify any potential conflict of interest issues
Make certain your procurement process is transparent

20. CASE STUDY

21. MISAPROPRIATION OF ASSETS

22. CONTACT INFORMATION
Brian Forster, Law Enforcement Programs Supervisor Phone: Heather Oates, CPA, CGMA, CICA Senior Auditor Phone: