Fraud Awareness and Prevention 2011

1. Fraud Awareness and Prevention 2011

2. Learning Objectives This training program is designed to help you: • Understand what fraud is, how it affects us and our stakeholders, and how to identify possible instances of fraud • Learn what is expected of NDSU employees in fraud awareness and performing your responsibilities • Know what resources are available to you in ensuring a compliant work place and in reporting possible cases of fraud

3. NDSU Office of Ethics, Compliance and Audit Fraud: Impact and Identifiers

4. Fraud, its impacts and identifiers • In a 2010 Report to the Nation on Occupational Fraud and Abuse, the Association of Certified Fraud Examiners (ACFE) found: • Organizations estimate they lose 5% of annual revenue due to fraud. Using an approximate budget of $340M, for NDSU that loss would be $17.0M. Even a 1% loss would be $3.4M. • Of all reported fraud cases: • 5% were in education with a median loss of $71,000 • 10% were in government and public administration with a median loss of $81,000

5. Fraud, its impacts and identifiers United States Government Accountability Office (GAO) defines fraud as: “a type of illegal act involving the obtaining of something of value through willful misrepresentation.”

6. Fraud, its impacts and identifiers • Fraud has many legal and operational definitions. Common across them are: • Intentional act or omission of truth or facts • Characterized by deceit, concealment or violation of trust • Perpetrated by individuals or organizations to obtain something of value (money, services, property, etc.) • To avoid payment or a loss of services • To secure personal or business advantage • Fraud, bribery and corruption are considered together

7. Fraud, its impacts and identifiers Typical Types of Fraud • Conflict of Interest • Personal favors • Preferential treatment (vendors/employees) • Bribery & Incentives • Kickbacks or financial reward • Billing Schemes • Fictitious vendors • Personal purchases • Returns and credits • Expense Reimbursements • Fictitious expenses • Multiple reimbursements from different sources • Returns and incentives

8. Fraud, its impacts and identifiers Other Specific Examples • Stealing, larceny, embezzlement • Making or altering documents w/intent • Inaccurate accounting or financial reporting • Misappropriation of public resources • Improper reporting of financial transactions • Receiving improper compensation for goods, services, hours not worked • Vendor favors and preferences given due to relationship • Employment preference to friends or relatives that is not in the interest of the organization

9. Fraud, its impacts and identifiers Impact of Fraud • Loss of assets (equipment, money or other resources) • Inaccurate or incomplete financial reporting • Non-compliance with laws or regulations • Ineffective operations • Poor quality of product or service • Negative work environment for employees and clients • Damage to reputation

10. Fraud, its impacts and identifiers How do we become aware of the possibility of fraud? • Understand the conditions present in a typical fraud scenario • Know red flags look for that might indicate the likelihood of fraud

11. Fraud Triangle:Three factors present in a typical fraud case • 1. Opportunity: • Ability to commit fraud without detection • Weak internal controls • Poor management • Lack of board oversight or accountability • Key position to override controls • 2. Pressure: • Financial need • Addiction • Medical issues • Power Pressure Rationalization Opportunity • 3. Rationalization: • Justify the act • It’s for a good cause (medical need) • I’ll pay it back • Everyone else does it • This company “owes” me NDSU Office of Ethics, Compliance and Audit

12. Fraud Red Flags – Specific Indicators Certain behaviors or characteristics: • Lifestyle outside their norm for their means • Unusually irritable or secretive • Override of controls • Too “consistent” in achieving goals/objectives • Delays in providing information • Changes in supplies/customers • Lack of documentation • Comments on dissatisfaction to fellow employees • Relationships with outsiders • Addictions • Long hours and rarely take vacations or sick times Only possible indicators – not evidence that supports a firm conclusion! NDSU Office of Ethics, Compliance and Audit

13. Employee responsibilities and expectations • "At NDSU, all employees, students and affiliated entities are responsible for ethical behavior, and making decisions as good stewards for the state of North Dakota.“ • - Dean L. Bresciani, President NDSU Office of Ethics, Compliance and Audit

14. NDSU Office of Ethics, Compliance and Audit Employee Responsibilities and Expectations

15. Employee responsibilities and expectations SBHE 611.10 and NDSU Policy 169 As a basic condition of employment: • Assume responsibility for safeguarding & preserving the assets & resources of the State and University System • Expected to report suspected theft, fraud or unlawful or improper use of public resources • Retaliation for such reporting is prohibited • Employees who have engaged in these activities; or had knowledge of such acts by another but unreasonably fails to report such information is subject to discipline, up to an including dismissal 65% of fraud cases were discovered by tips or by an employee accidentally coming across it during the course of executing their normal duties NDSU Office of Ethics, Compliance and Audit

16. NDSU University Governance Model “An effective governance model creates and protects shareholder value through an enterprise wide view of objectives and risks to most effectively align systems and processes.” Ethics and Business Conduct Stakeholder Stewardship North Dakota University System Vision Mission Values Office of the Chancellor Governance Board Committees Councils Academic Affairs Administrative Affairs Adult Learners College Faculties Human Resource Diversity Staff Senate Guidance Century Code Policies Accountability Measures 2009 Strategic Goals Land Grant University Administration Office of the President and Cabinet Mission Vision Core Values Campus Themes External Considerations: Regulatory bodies Business PartnersEmerging Markets Competitors Economic indicators Financial markets Executives Objectives, Strategy and Business Alignment Strategic Financial Operational Compliance Departments Academics Athletics Human Resources Finance Information Technology Student Affairs Research Administration Management Level Oversight and Control Systems Strategic Planning Process Performance Management Accountability Internal Audit

17. Stewardship and NDSU Stewardship: The careful and responsible management of something entrusted to one’s care. Students Citizens of ND Communities Business / Education Partners Granting Agencies Red River Valley Each Other NDSU Office of Ethics, Compliance and Audit

18. Employee responsibilities and expectations • Each of us was hired to serve a purpose for our stakeholders • Responsibility for resources and reporting of fraud are basic conditions of our employment • We need to be aware of who we work for • We support the achievement of NDSU’s objectives • We are all responsible for managing risk and supporting effective internal control systems • Understanding the link between our role and NDSU’s goals helps us to know what “the right thing” is and when to communicate inaccurate, inefficient or even fraudulent activities NDSU Office of Ethics, Compliance and Audit

19. Employee responsibilities and expectations Challenges “Red Tape” and Regulations Limited Resources Pressure from Supervisor / Peers Personal / Family Issues Change Lack of Training Financial Doing the right thing isn’t always clear cut and easy. Experience shows us that when making a decision, the hardest choice to make is usually the right and ethical choice. NDSU Office of Ethics, Compliance and Audit

20. Employee responsibilities and expectations • Eyes and ears of the organization • Risk and fraud awareness • Identify changes in processes and potential control gaps • Execute controls consistently • Be empowered to maintain a workplace of integrity – set an example and support others in doing the right thing • Utilize reporting resources NDSU Office of Ethics, Compliance and Audit

21. NDSU Office of Ethics, Compliance and Audit Available Resources

22. Resources to support you • Office of Ethics, Compliance and Audit • NDSU Policies and Procedures • Grant and Contract Accounting • Human Resources • Office of Equity, Diversity and Global Outreach • General Counsel • University Police & Safety Office • Sponsored Programs Administration (RCATT) NDSU Office of Ethics, Compliance and Audit

23. Eric Miller Director – Office of Ethics, Compliance and Audit Eric.j.miller@ndsu.edu (701)231-9413 - office (612)618-8134 - mobile Fraud Hotline: (866)912-5378 (online reporting at http://www.ndsu.edu/fraud_hotline/) NDSU “We are the pride of North Dakota!” NDSU Office of Ethics, Compliance and Audit