Fraud: Identification and Reporting

1. Fraud: Identification and Reporting May 2014

2. What is Fraud? An intentional act or omission designed to deceive others, resulting in the victim suffering a loss and/or the perpetrator achieving a gain.

3. Fraud • Almost 45% of U.S organizations say they have been victims of economic crimes within the last two years according to the 2014 PriceWaterhouse Coopers Global Economic Crime Survey. • It is estimated that the typical organization loses 5% of its revenue each year to fraud. • Smaller organizations tend to suffer disproportionately large losses due to fraud. • The higher the fraud perpetrator’s level of authority, the greater fraud losses tend to be. • Collusion helps employees evade independent checks and other anti-fraud controls, enabling them to steal larger amounts.

4. Fraud Victims Most common industries victimized by fraud: Banking/Financial Services Manufacturing Government/Public Administration

5. Types of Economic Crime Reported by Public Sector Asset misappropriation Procurement fraud Bribery and corruption Cybercrime Accounting fraud Money laundering Tax fraud Sustainability fraud

6. How Can Fraud Happen Here? Examples Procurement card used for personal purchases Kickbacks received for awarding sole source or emergency contracts Invoices from fictitious vendors submitted for payment Cash or checks for registration fees intercepted and personally used Assets misused or stolen Items purchased with a purchase order or procurement card, the sold for money Grants awarded to a related party for which one receives personal gain False items included on the employee travel reimbursement form Contractor invoices submitted for payment for work not completed and/or at rates in excess of contract terms Federal and/or state grant funds used to pay personal expenses

7. Fraud Triangle Pressure- What motivates the crime in the first place Ex. Personal debt or poor credit Opportunity- Methods to commit the crime. Ex. Extreme trust in a single individual Rationalization- Justification for fraudulent act Ex. “The agency owes me”

8. Impact Aside from a financial impact, fraud can cause collateral damage to employee morale, corporate reputation, and business relationships.

9. Potential Red Flags of Fraud High volume of single vendors, lack of competitive bidding High volume of unusual transactions Missing documentation Individual exercising excessive control Excessive customer or employee complaints Common names/addresses for refunds Same address for multiple vendors Invoices or receipts with minimal information Excessive journal entries

10. General Responsibilities All SCDE employees are responsible for detecting and reporting fraudulent activities in accordance with the agency’s fraud policy located on the p:drive. Each manager should be familiar with the types of irregularities which might occur in his or her area and be alert for any indication that such an activity has occurred.

11. Possible Ways to Prevent Fraud Proper tone at the top that says fraud will not be tolerated Know your operations and ask questions Due diligence prior to manager approval Establish and review exception reports Adequate segregation of duties Stringent review of invoices prior to payment Strong system of internal controls

12. Reporting As soon as an impropriety is detected or suspected, SCDE employees should immediately contact SCDE’s Office of Auditing Services by using the following contact information: Email: Auditingservices@ed.sc.gov Mailing Address: Office of Auditing Services South Carolina Department of Education 1429 Senate Street, Room 404C Columbia, SC 29201 Telephone: 803-734-8108

13. Reporting Cont’d The agency’s recommended procedures for reporting allegations of fraudulent activities, misappropriation, and similar irregularities in no way prohibits or prevents agency personnel from reporting the allegation directly to the Office of the State Inspector General using the contact information below: Email: oig@oig.sc.gov Mailing: Office of the State Inspector General 111 Executive Center Drive, Suite 204 Synergy Business Park Enoree Building Columbia, SC 29210-8416 Telephone: 1-855-723-7283

14. Auditing Services’ Responsibilities Auditing Services is responsible for determining the nature and facts of the allegation and for coordinating with the Office of General Counsel to determine the appropriate course of action. Auditing Services is responsible for conducting investigations requiring accounting and/or auditing knowledge including misappropriation of funds, supplies, or other assets; alteration of agency records; irregularities in financial transactions; and suspected improprieties by subrecipients, consultants, and employees.

15. Auditing Services’ Responsibilities Cont’d Auditing Services will assess the facts known relative to fraud investigations in order to determine the need to implement or strengthen controls and to design audit tests to identify similar fraudulent activities in the future. Auditing Services is also responsible for notifying the Office of the State Inspector General of all allegations of fraud or corruption involving a state employee as a suspect or subject.

16. General Counsel’s Responsibilities In addition to collaborating with Auditing Services on the appropriate course of action, General Counsel will contact the appropriate law enforcement agency when an allegation or the results of an investigation indicate that a crime has been committed. General counsel is also responsible for contacting the bonding company when applicable.

17. What You Should Do While it may be tempting to conduct your own investigation or fact finding mission, you must exercise great care to avoid making false accusations or any statements which could provide a basis for a suit for false accusation or similar offenses. If you become aware of any fraudulent activities, you should keep the information confidential and not discuss the suspicions, allegations, or facts with anyone, unless specifically directed to do so by General Counsel or Auditing Services. You should also direct all inquires from the suspected individual, his or her representative, or attorney to General Counsel .