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Understanding Risks of Fraud and Abuse in Research September 16, 2011 Judy Mudgett Nathan Cooke

Understanding Risks of Fraud and Abuse in Research September 16, 2011 Judy Mudgett Nathan Cooke. Overview. 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.

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Understanding Risks of Fraud and Abuse in Research September 16, 2011 Judy Mudgett Nathan Cooke

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  1. Understanding Risks of Fraud and Abuse in Research September 16, 2011 • Judy Mudgett • Nathan Cooke

  2. Overview • Background on Fraud/Abuse • Fraud/Abuse by Phase of Research • Real Examples of Fraud • Available Resources

  3. Why Important?

  4. Why Important?

  5. Why Important?

  6. 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.

  7. Fraud Triangle(Donald Cressey)

  8. FRAUD PRESSURES – Personal Indicators • Work-related Pressures • Under appreciated • Job Dissatisfaction • Underpaid • Other • Challenge • Family/peer pressure • Financial • Living beyond means • Greed • Poor Credit • Financial Losses • Health Expenses • Vices • Gambling • Drugs, alcohol

  9. 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

  10. 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

  11. Internal Controls

  12. Control Weakness(ACFE 2010 Report to the Nations)

  13. Research Risk Areas • Conflict of Interest/ Commitment • Procurement & P-cards • Travel Reimbursements • Payroll and/or Effort Reporting • Subcontracts • Falsifying Research Data/Results

  14. Pre-Award • Undisclosed COI/Commitment • Unrealistic or Vague Budgets • Unidentified Cost Sharing • Duplicative Funding Sources • Selection/Awarding Subcontracts

  15. 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.

  16. During • Effort Reporting • Conflict of Commitment • Costs Charged • Allowable and Allocable • Stewardship of Resources • Monitoring Subcontracts • Tracking Cost Sharing

  17. 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.

  18. Close-out • Using Remaining Funds • Stewardship of Retained Balances • Falsifying Research Data/Results

  19. 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.

  20. 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”

  21. Behavioral Red Flags • Living beyond means • Experiencing financial difficulties • Wheeler-dealer or entitled attitude • Close relationship with vendor • Pressure from within the organization

  22. 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

  23. 4/31 Receipt

  24. 1/22/2020 Receipt

  25. Supporting Invoice

  26. Budget Reviews

  27. Detection(ACFE 2010 Report to the Nations)

  28. Detection(ACFE 2010 Report to the Nations)

  29. Source of Tips(ACFE 2010 Report to the Nations)

  30. Internal Controls Modified or Implemented in response to Fraud(ACFE 2010 Report to the Nations)

  31. Age of Perpetrator(ACFE 2010 Report to the Nations)

  32. 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

  33. QUESTIONS???

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