Fraud: What’s It All About?

1. Fraud: What’s It All About? Ethics and Fraud in the Workplace June 16, 2011 Ron Cortez Associate Vice Chancellor of Administrative Services Albert Rojas Staff Auditor UCSB Audit and Advisory Services

2. Agenda • What is fraud? • Identifying Fraud in the Workplace • Minimizing Fraud • UC Whistleblower

3. 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)

4. What Actions Constitute Fraud?

5. Fraud Triangle Source: ACFE

6. 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

7. 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”

8. 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.

9. 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.

10. …and a bonus # 11 It’s legal!

11. 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

12. Characteristics of Classic Embezzlers • 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.”

13. 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.

14. Lifestyle and Personality Red Flags • 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

15. Organizational Red Flags • Lack of Attention to Detail • Poor Segregation of Duties • Tendency Toward Crisis Management • Bad “Tone at the Top” • No Communication of Expectations • Too Much Trust in Key Employees • Lack of Proper Authorization Procedures

16. Accountability and Control Red Flags • Lack 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

17. Actions to Minimize Fraud 1 6 2 5 3 4 Tone at the Top Investigation & Follow-up Education & Training Proactive Detection Integrity Risk & Controls Reporting & Monitoring

18. Fraud Opportunity Checklist 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?

19. 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.

20. UC Whistleblower Resources UC Whistleblower Hotline (1-800-403-4744) http://universityofcalifornia.edu/hotline Whistleblower Policies/Information http://ucwhistleblower.ucop.edu http://www.whistleblower.ucsb.edu/whistleblowerprocedures.html

21. UC Whistleblower Protection Whistleblower Protection Policies/Information http://ucwhistleblower.ucop.edu http://www.whistleblower.ucsb.edu/ Protection from Retaliation Contacts • Human Resources • Academic Personnel • Locally Designated Official, or • Your Supervisor

22. What is your responsibility?

23. What to do when confronted with a whistleblower allegation: • 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

24. 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.

25. Association of Certified Fraud Examiners Conclusion on Detecting Fraud: “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

26. Conclusion • Be Aware of Your Environment • Take Steps to Minimize Fraud • Be Aware of Fraud Red Flags • Consider Design When Planning Controls

27. 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, Interim HR Director – Ext. 4832 • Dustin Olson, Chief of Police – Ext. 4151

28. Questions/Comments?