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
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.”
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.
Lifestyle and Personality Red
Flags

Wheeler/Dealer

Dissatisfied Worker

Dominating Personality

Unable to Relax

Living Beyond Means

No Vacations or Sick Time

Poor Money Management


Poor or “Too Good to Be
True” Performance
Unusual or Change in
Personality (alcohol, drugs,
sleep, irritable, defensive,
argumentative)
Source: Harvard Internal Audit Home Page
Organizational Red Flags

Bad “Tone at the
Top”

Lack of Attention to
Detail

No Communication of
Expectations

Poor Segregation of
Duties

Too Much Trust in Key
Employees

Tendency Toward
Crisis Management

Lack of Proper
Authorization
Procedures
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
Actions to Minimize Fraud
Investigation
& Follow-up
6
Proactive
Detection
Reporting &
Monitoring
5
1
4
Tone at the
Top
2
Education
& Training
3
Integrity
Risk &
Controls
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?
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/Information
http://ucwhistleblower.ucop.edu
http://www.whistleblower.ucsb.edu/whistleblowerp
rocedures.html
UC Whistleblower Protection
Whistleblower Protection
Policies/Information
http://ucwhistleblower.ucop.edu
http://www.whistleblower.ucsb.edu/
Protection
Retaliation Contacts
Humanfrom
Resources
Academic Personnel
Locally Designated Official, or
Your Supervisor
What is your responsibility?
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
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.
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
Conclusion
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
Questions/Comments?