Fraud Awareness and the Whistleblower Policy

1. Quarterly Chairs’ Meeting Fraud Awareness and the Whistleblower Policy Mike Jenson Director Audit & Advisory Services February 4, 2004

2. Present Situation • Recovering economy • Global • National • State-wide • Budget cuts • Staff lay-offs • No staff merits

3. Do More with Less… • Inadequate segregation of duties • Lack of supervision, monitoring and reconciliation procedures • Short cuts – production oriented • Policy and Law Non-compliance • Rationalize fraudulent activities

4. Fraud is Costly • Direct monetary costs/losses to the dept. • Devastating (senior trusted employee) • Question management skills • Time and resources involved in investigation procedures • Disciplinary action decisions • Damaged careers and reputations • Negative impact on staff morale • Possible external agency audits • Negative impact on future funding or donations • Negative media exposure

5. Headlines…..Headaches • San Francisco Chronicle (August 1995) Embezzlement probe of UC Claims Manager – at least $500k gone • Wall Street Journal (December 1996) Audit finds financial irregularities at UC Berkeley Business School • Los Angeles Times (February 1997) Doctor who studied at UCI says her eggs were misused • San Francisco Chronicle (July 1999) Fired UC Cashier Arrested in $4.7 million theft suspect financed daughter's angel firm, police say • Los Alamos National Laboratory (2003) Procurement card issues • The Press-Enterprise (December 1998) Ex-UCR employee arrested – Nearly $20,000 was allegedly embezzled • The Press-Enterprise (February 2001) Former UCR employee sentenced to prison- Starting in 1996, she embezzled $188,563 via checks to persons not on the University payroll

6. Common Types of Fraud • Procurement card • Fictitious travel vouchers & purchase orders • Unrecorded vacation and sick leave • University resources used for personal gain • Entertainment w/o legitimate business purpose • Claimed benefits for non-dependents • Missing cash w/o forced entry • Unrecorded cash collections • Payroll issues

7. Duties of Department Chairs • APM-245-4: • A department chair is a faculty member who serves as the academic leader and administrative head of a department of instruction or research, or a clinical service. • APM-245 Appendix A: • As leader of the department, the chair has the following duties: 3. The appointee should be receptive to questions, complaints, and suggestions from members of the department, both faculty and staff personnel, and from students, and should take appropriate action on them. • The chair’s administrative duties include the following: 5. To prepare the budget and administer the financial affairs of the department, in accord with University procedures.

8. Helpful Hints • Be involved with finances • Be aware of “red flags” of fraud • Balance risk and controls • Be ethical and do the right thing • Implement fraud prevention measures

9. Fraud Prevention Measures • Strong internal controls • Background checks on new employees • Continuing monitoring procedures • Willingness to take action • Employee training • Independent reconciliation procedures

10. Fraud Opportunity Checklist • Ask Yourself: • What deviations from acceptable business practices are possible? • Are there significant variations from expected financial results? • What are the weakest links in my department’s internal controls?

11. UC INVESTIGATION SOURCES FY 2003 Count Audit 5% Anonymous 4% Management 55% Whistleblower 25% UC Police 4% Outside Party 7%

12. Conclusion on Fraud Detection “ Relatively few fraud and abuse offenses are discovered through routine audits. Most fraud is uncovered as a result of tips and complaints from other employees.” Source: Association of Certified Fraud Examiner, 1996

13. Whistleblower Policies Policy on Reporting and Investigating Allegations of Suspected Improper Governmental Activities and Policy for Protection of Whistleblowers From Retaliation and Guidelines for Reviewing Retaliation Complaints (Whistleblower Protection Policy) represent the University’s implementing policies for the California Whistleblower Protection Act Effective October 2002

14. POLICY OBJECTIVE To assure an appropriate INSTITUTIONAL response to any known or suspected impropriety and to create an environment that encourages candor while protecting the rights of all parties (i.e. whistleblowers, investigation participants, subjects and investigators).

15. Policy Objective • UC values ethical and lawful conduct • Policy designed to: • Encourage timely, safe, and open reporting of alleged wrongs • Ensure consistent and timely institutional response • Appropriate reporting of whistleblower investigations

16. Improper Governmental Activity • Any activity by a state agency or by an employee that is undertaken in the performance of the employee’s official duties, whether or not that action is within the scope of his or her employment, and that (1) is in violation of any state or federal law or regulation, including, but not limited to, corruption, malfeasance, bribery, theft of government property, fraudulent claims, fraud, coercion, conversion, malicious prosecution, misuse of government property, or willful omission to perform duty, or (2) is economically wasteful, or involves gross misconduct, incompetency, or inefficiency. • Serious or substantial violations of University policy may constitute improper governmental activities. • Must directly involve the University either as victim or perpetrator

17. Illegal Order Any directive to violate or assist in violating an applicable federal, state, or local law, rule or regulation or any order to work or cause others to work in conditions outside of their line of duty that would unreasonably threaten the health or safety of employees or the public.

18. PROTECTED DISCLOSURE Any good faith communication that discloses or demonstrates an intention to disclose information that may evidence: 1) an improper governmental activity; or 2) any condition that may significantly threaten the health or safety of employees or the public if the disclosure or intention to disclose was made for the purpose of remedying that condition.

19. Whistleblower • Person/entity making a protected disclosure (reporting party) • UC employees (academic personnel or staff), students, applicants for employment, vendors, contractors or general public • NOT investigators or fact-finders (do not determine appropriate corrective or remedial action that may be warranted)

20. Locally Designated Official (LDO) • Appointed by Chancellor • Delegated overall coordination and implementation of whistleblower procedure for UCR • Manages all implementing procedures and ensures UCR effectively responds to whistleblower reports • Ensures adequate communication and coordination of allegations of suspected improper governmental activities

21. Section III Conditions • Possible violation of any state or federal law or regulation • Significant internal control or policy deficiency that puts campus at risk of potential losses • Likely to receive media or other public attention • Misuse of campus resources or creates an exposure to a significant liability • Significant possibility of being the result of a criminal act

22. Section III Conditions (continued) • Significant threat to the health or safety of employees, students or the public • Situation that is economically wasteful, or involves gross misconduct, incompetency, or inefficiency • Likely to involve multiple investigative units • Significant or sensitive for other reasons Significant = $1,000

23. Making a Whistleblower Report REPORTS: • Encouraged to be written • May be oral • Should be factual and detailed • May be direct or anonymous

24. Making a Whistleblower Report (continued) • Reports could be reported to: • Campus investigative units • UC Whistleblower Hotline (800-403-4744) • Locally Designated Official (LDO) • Reporting employee’s immediate or other supervisor • Other appropriate campus administrators • State Auditor or State Auditor Hotline

25. Receiving a Whistleblower Report • Be aware of and alert to any communications that may constitute reports of allegations of suspected improper governmental activity • Ask questions; obtain specific and relevant information from the WB during initial contact • Encourage the whistleblower to make a written report • Immediately create written document of all oral reports • Unless a section III condition, exercise appropriate professional judgment in determining which matters can be reviewed under own authority

26. Receiving a Whistleblower Report (continued) • Consult with supervisors, LDO, campus investigative units and exercise of judgment should err on side of upward reporting • Turn matter over to LDO or investigative unit if investigative procedures go beyond normal responsibilities • If your whistleblower wants to be anonymous, advise him/her that confidentiality will be maintained to the extent possible, but within • limitations of law and policy • Need to conduct a competent investigation

27. Whistleblower suspects improper governmental activity Whistleblower reports to UC Hotline 800-403-4744 Whistleblower reports to Bureau of State Audits Hotline 800-952-5665 Whistleblower reports to report recipient (LDO/Supervisor/Other campus administrators/Campus investigative units) Is the alleged matter an improper governmental activity and is there sufficient information? Report to LDO Bureau of State Audits addresses matter No Is the alleged matter an improper governmental activity and is there sufficient information? Whistleblower informed of no investigation Yes No Is a Section III condition met? Operating unit management addresses matter No Whistleblower informed of no investigation Directed to operating unit management Yes Yes Is a Section III condition met? Involves Chancellor, LDO or LDO’s supervisor? No Involves Campus investigative unit head? Yes Report to UCOP Sr. VP- Business & Finance UCOP Sr. VP- Business & Finance addresses matter No Directed to operating unit management Yes No Report recipient documents report in writing Yes Involves Chancellor or LDO’s supervisor? Report recipient requests whistleblower to complete UCR Whistleblower Report Form Operating unit management addresses matter Whistleblower completes UCR Whistleblower Report Form? No Report recipient completes UCR Whistleblower Report Form Yes No Involves campus investigative unit head? Yes Report recipient completes UCR Investigations Report Form No Report recipient forwards UCR Whistleblower Report Form & UCR Investigations Report Form to LDO within one business day of receipt of report Report to UCOP Sr. VP-Business & Finance Yes LDO assigns a master case number UCOP Sr. VP- Business and Finance addresses matter LDO addresses matter LDO and Investigations Team coordinate with the appropriate campus investigative unit Alleged matter is investigated and whistleblower informed of outcome, as appropriate

28. Policy for Protection of Whistleblowers from Retaliation and Guidelines for Reviewing Retaliation Complaints (Whistleblower Protection Policy) • UC is committed to protecting employees from interference with or retaliation for having made a protected disclosure or for having refused an illegal order. • A University employee may not directly or indirectly use or attempt to use the official authority or influence of his or her position or office for the purpose of interfering with the right of a person to make a protected disclosure. • It is the intention of the University to take whatever action may be needed to prevent and correct behavior that violates this Policy.

29. Contact Information • Audit & Advisory Services (A&AS) • Address: 1201 University Avenue, suite 209 (University Village) • Telephone: 909-787-4667 • Fax: 909-787-7209 • A&AS homepage: http://audit.ucr.edu/ • Suggested links: • About Internal Controls: http://audit.ucr.edu/internal_controls.htm • Internal Control Quiz/Checklist: http://audit.ucr.edu/departmental_quiz.htm • UC Whistleblower Policies: http://www.ucop.edu/ucophome/coordrev/policy/10-04-02.html