Understanding Risks of Fraud and
Abuse in Research
September 16, 2011
 Judy Mudgett
 Nathan Cooke
Overview
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Background on Fraud/Abuse
Fraud/Abuse by Phase of Research
Real Examples of Fraud
Available Resources
Why Important?
Why Important?
Why Important?
Fraud and Abuse Defined
 Fraud-
deceit, trickery, suppression of the truth
or breach of confidence, perpetrated for profit or to
gain some unfair or dishonest advantage.
 Abuse-
Corrupt, wrong or improper use of
authority, capabilities and/or resources.
Fraud Triangle
(Donald Cressey)
FRAUD PRESSURES – Personal
Indicators
 Financial
–
–
–
–
–
Living beyond means
Greed
Poor Credit
Financial Losses
Health Expenses
 Vices
– Gambling
– Drugs, alcohol
 Work-related
Pressures
– Under appreciated
– Job Dissatisfaction
– Underpaid
 Other
– Challenge
– Family/peer pressure
Common Rationalizations





Employer owes
Borrowing, will pay it back
Nobody will get hurt
Using money for a good purpose
Just to get over “this” hump
 Everyone rationalizes
– Judge self by their intentions
– Judge others by their actions
Fraud Opportunity
 Work is assigned and carried out in
a way that would allow one person
to divert funds without any high
expectation of being caught
 Fraud condition impacted most by
internal controls
 Strongest defense against fraud
Internal Controls
Control Weakness
(ACFE 2010 Report to the Nations)
Lack of Internal Controls
Override of Existing Internal Controls
Lack of Management Review
Poor Tone at the Top
Lack of Compentent Personnel in Oversight Roles
Lack of Independent Checks/Audits
Lack of Employee Fraud Education
Lack of Clear Lines of Authority
Lack of reporting Mechanism
0.0% 5.0% 10.0%15.0%20.0%25.0%30.0%35.0%40.0%
Research Risk Areas
 Conflict of Interest/
Commitment
 Procurement & P-cards
 Travel Reimbursements
 Payroll and/or Effort Reporting
 Subcontracts
 Falsifying Research Data/Results
Pre-Award





Undisclosed COI/Commitment
Unrealistic or Vague Budgets
Unidentified Cost Sharing
Duplicative Funding Sources
Selection/Awarding Subcontracts
Example: Pre-Award
 Faculty member is a Co-PI on a
research grant and his/her spouse
has a company that provides a
service that is needed as part of the
grant. The spouse’s company is
paid $80,000 to provide the service
with grant funds and no disclosure
of the COI is made to the granting
agency or University COI committee.
During
 Effort Reporting
 Conflict of Commitment
 Costs Charged
– Allowable and Allocable
 Stewardship of Resources
 Monitoring Subcontracts
 Tracking Cost Sharing
Examples: During
 University employee charged 100% effort to
grant, despite participating in writing
proposals for additional grants.
 Over $40,000 of personal items purchased and
charged to research funds. Receipts were
altered to misidentify the actual items
purchased.
 Faculty member has personal business and
University lab. Mixes use of personnel and
resources between the two.
Close-out
 Using Remaining Funds
 Stewardship of Retained Balances
 Falsifying Research Data/Results
Close-out Example
 Equipment purchases near end of
period of performance.
 PI with multiple grants, selectively
charges the grants for expenditure
to maximize the amount of funds
that are retained rather than being
returned to sponsor.
What Can You Do?
 Review documents with professional
skepticism
 Monitor transactions and budgets closely
and reconcile accounts timely
 Ask questions and fully understand
business transactions/dealings
 Communicate unsatisfied concerns to
appropriate personnel
 Close the gap on internal control
weaknesses noted during everyday work
 Notice “Red Flags”
Behavioral Red Flags
Living beyond means
Experiencing financial difficulties
Wheeler-dealer or entitled attitude
Close relationship with vendor
Pressure from within the organization
Documentation/Records Indicators
– Mistakes on Invoices (e.g., 4/31 date)
– Photo-Copied Invoices/Apparent altering
– Inconsistencies in documents and described
purpose/actual goods received
– Delays in Processing of Records
– Rising Expenses/Falling Revenues (unusual trends)
– Significant Number of Transactions Near Thresholds
– Missing or vague documentation
– Frequent Transfers of Expenses between budgets
– Web Merchants Invoices C: Drive Rather Than
URL
4/31 Receipt
1/22/2020 Receipt
Supporting Invoice
Budget Reviews
QTRLY PAY SUMMARY 09/01/20XX THRU 12/31/20XX
TOTAL_HRS
GROSS PAY
NET PAY
EMPLOYEE
640.00 $
6,400.00
$ 4,910.09
BOBBY
463.00
4,630.00
3,593.19
ANDY
264.00
2,640.00
2,310.64
TOMMY
213.20
2,150.35
1,556.69
MIKE
189.00
1,890.00
1,672.67
STEVE
175.00
1,750.00
1,556.20
JAMES
117.00
1,170.00
1,052.65
LUKE
114.50
1,145.00
1,019.74
TYLER
32.50
325.00
287.47
JOHN
8.00
80.00
67.57
CHRIS
Detection
(ACFE 2010 Report to the Nations)
Detection
(ACFE 2010 Report to the Nations)
Percent of Cases
Tip
Management Review
Internal Audit
By Accident
Account Reconciliation
Document Examination
Percent of Cases
External Audit
Surveillance/Monitoring
Notified by Police
Confession
IT Controls
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Source of Tips
(ACFE 2010 Report to the Nations)
Source of Tips
Employee
Customer
Anonymous
Vendor
Shareholder/Owner
Competitor
Perpetrator's Acquaintance
Percent of Tips
49.2%
17.8%
13.4%
12.1%
3.7%
2.5%
1.8%
Internal Controls Modified or Implemented in
response to Fraud
(ACFE 2010 Report to the Nations)
Control Implemented/Modified
Increased Segregation of Duties
Management Review
Surprise Audits
Fraud Training for Employees
Fraud Training for Managers/Executives
Job Rotation/Mandatory Vacation
Internal Audit/FE Department
Anti-Fraud Policy
Code of Conduct
External Audit of F/S
Hotline
External Audit of ICOFR
Independent Audit Committee
Management Certification of F/S
Rewards for Whistleblowers
Employee Support Programs
Percent of Cases
61.2%
50.6%
22.5%
16.4%
14.8%
13.5%
12.3%
11.7%
8.7%
8.7%
7.9%
7.8%
6.0%
5.9%
4.0%
1.8%
Age of Perpetrator
(ACFE 2010 Report to the Nations)
Resources Available
 Human Resource Representatives
 Financial Officers
 Compliance Hotline
(1-800-560-1637)
 Internal Audit Unit
 College Research Administration Office
 Office of Sponsored Programs
 Office for Research Protections
 College of Medicine Research Affairs
QUESTIONS???