Ethics and Red Flags

1. Ethics and Red Flags Betsy Bowers, Associate Vice President Internal Auditing & Management Consulting University of West Florida

2. Overview Ethics Red Flags of Fraud PCard Responsibilities

3. What are Ethics?

4. Defining Ethics? eth·icPronunciation: 'e-thik Function: noun from Greek Éthos, Date: 14th century 1 the discipline dealing with what is good and badand with moral duty and obligation2 a: a set of moral principles or valuesb : the principles of conduct governing an individual or a group <professional ethics>

5. Ethics 101 • Socrates & Plato (2300 years ago) • Is morality relative to a person’s culture? • Are ethics an expression of emotion designed to influence people’s behaviors? • Utilitarianism –the moral good/evil of human acts is determined by the RESULTS of those acts

6. Ethics 101 (continued)Soft Internal Controls • Trust, Integrity, Values, & Beliefs • Recent Management Initiatives • Downsizing • Eliminating bureaucracy/empowerment • Managers as Coaches • Ethical Environment • Fraud & Soft Internal Controls • Accountability Shift

7. Defining Ethics?

8. What’s the Right Thing? “What are the Rules?”

9. Ethical Rules? • Is it legal and in compliance with YOUR organization’s policy? • Is it fair? • Honest, truthful, responsible, trustworthy, respect individual • Would it pass the newspaper test (or the Mom test)?

10. Why Ethics are important to Your Organization • Responsibility • Regulatory requirements • Return on Integrity

11. Return on Integrity (the other ROI) Good Ethics = Good Business • Better employee decision making • Greater employee commitment to the organization • Reduced unethical or illegal behavior • Better work environment • Better reputation and image for YOUR organization

12. QUIZ ETHICAL DILEMMAS

13. QUIZ - QUESTION #1 A company that does a lot of business with your organization offers you a part-time job working on the weekends. Do you • Take it, it’s a lot of $’s for a few hours work. • Tell them you’ll do it but only if they’ll also hire your boss. • ?

14. QUIZ - QUESTION #2 You mistakenly used your Organization-issued cell phone to make personal calls and now there is a $30 charge. Do you: • Do nothing since most of the time you talked was on the FREE minutes • Use your personal cell phone for $30 of business talk • ?

15. QUIZ - QUESTION #3 The company that does all of your dept’s shredding sent you a $100 gift certificate for being such a good customer. Do you: • Buy a birthday present for your spouse • Give it to your boss for a “Boss’s Day” present. • ?

16. QUIZ - QUESTION #4 Your secretary wants to take the afternoon off to attend her child’s graduation ceremony, but she has no vacation hours accrued. She says she will make it up the following week. What do you do? • Let her do it and have her make up the time next week. • Cover for her and forget about extra hours • ?

17. Ethical Dilemma – What do you do? Your dear friend and office assistant, Mary asks you if she can “borrow” 10 printer cartridges from the office supply. When you ask her why, she says her husband’s needs them to print a big project tonight and he doesn’t have money to buy them. She says she’ll replace them at the end of the month when she gets paid.

18. Ethical Dilemma - Part II A week after you tell Mary “NO”, you discover the office is out of printer cartridges. Another worker said he saw Mary take them from the storage cabinet and carry them out to her car. He didn’t say anything because he didn’t think it was any of his business. Besides he knew that Mary was a good friend of yours.

19. Group Exercises • Analyze the consequences. • Who will be helped by what you do? • Who will be harmed? • What kinds of benefits and harms will there be? • Analyze the actions. • Consider all the options from different perspectives. • How do the actions measure up against moral principles like honesty, fairness, equality, respecting dignity of others, people’s rights? • Is there a conflict between the rights of different people involved? • Which option is least problematic? • Make a decision.

20. Causes of EthicalFailures • NO “Tone at the Top” • NO Consistency • Train Wrecks • Fear of Retaliation • No reporting mechanisms • No Education, Communication or Tools

21. Silence is NOT Golden • Speak out! • Be outraged! • Silence implies your consent!!

22. Final Thoughts Internal controls are always dynamic • Good internal control system: • Reduces careless mistakes and risky business • Increases staff’s efficiency • Teaches responsibility/accountability for money • It is #1 deterrent for fraud

23. Red Flags 101

24. Did you know? • 22%believed that one had to “bend the rules” or act unethically to get ahead, and would do so if they believed they would not get caught. • >40% said they would act unethically if directed by their boss, and would lie to their boss to cover a mistake. • 70%of undergraduates admit at least one instance of cheating. • 20-25%undergraduates admit to five of more instances of cheating. What about Ethics in today’s workforce? Source: Junior Achievement and Deloitte Ethics Surveys

25. What It Means To You • As an employee of your county, • be alert to signs of fraud; • observe the applicable provisions of the Code of Ethics for Public Officers and Employees, to the extent Part III of Chapter 112, Florida Statutes; and • it is essential that all the necessary steps are taken to protect our customer’s from Identity Theft and be there for them, should an instance of ID Theft occur.

26. Warning Signs New-found “wealth” Secretive Absenteeism or NEVER taking off work Regular ill health or “shaky” appearance Easily making and breaking promises and commitments Series of unreasonable/creative explanations Self Centered Inconsistent or illogical behavior Family problems Borrowing money from coworkers Evidence of deceit Very social at work Extremely devout Rewriting records Easily Annoyed • Financial pressures • Medical bills • Family responsibilities • A spouse losing a job • Divorce • Debt requirements (e.g. foreclosure, bankruptcy) • Maintaining a current lifestyle • Car repairs • Addictions • Education/Tuition

27. What are Fraud Red Flags? • Living beyond ones means • Bragging about significant new purchases • Carrying unusually large sums of money • Person is dissatisfied employee • Never takes vacation or sick time • Refusing vacations or promotions for fear of detection • Dominant personality • Close relationship with vendors/customers • Borrowing money from co-workers • Creditors or collectors calling/appearing at the workplace • Gambling beyond the ability to stand the loss • Excessive drinking or other personal habits • Easily annoyed at reasonable questioning • Providing unreasonable responses to questions • Rewriting records under the guise of neatness in presentation

28. Common Formsof Fraud • Falsifying timesheets for a higher amount of pay • Pilfering stamps • Stealing of any kind (e.g., cash, petty cash, supplies, equipment, tools, data, records, etc.) • Forgery • Lapping collections on customers’ accounts • Holding out cash and then substituting checks to balance • Pocketing payments on customers’ accounts, issuing receipts on self-designed receipt books • Not depositing all cash receipts

29. Common Forms of Fraud (cont.) • Creating fictitious employees and collecting the paychecks • Failing to end personnel assignments for terminated employees and collecting the paychecks • Paying for personal expenses with University funds; PCard • Increasing vendor invoices through collusion • Billing for services not rendered and collecting the cash • Seizing/intercepting checks payable to vendors • Recording fictitious transactions on the books to cover up theft

30. Fraud DangerSignals • High personnel turnover • Low employee morale • No supporting documentation for adjusting entries • Incomplete or untimely bank reconciliations • Increased customer complaints • Write-offs of inventory shortages with no attempt to determine the cause • Unrealistic performance expectations

31. Fraud DangerSignals (cont) • Rumors of conflicts of interest • Using duplicate invoices to pay vendors • Frequent use of sole-source procurement contracts • Unreconciled accounts • Dormant accounts • Failure to deactivate or terminate access after employees have separated from a position, unit or the county

32. Suspicious Documents • Documents provided for identification appear to have been altered or forged. • The photograph or physical description on the identification is not consistent with the appearance of the applicant or customer presenting the identification. • Other information on the identification is not consistent with information provided by the person opening a new covered account or customer presenting the identification.

33. What if you suspect an irregularity? Follow your county’s policy on reporting fraud. (If you don’t have one, put one in place and work with Auditor General if necessary.) Example: UWF Policy P-10.00-10/04 “Policy Against Fraudulent or Wrongful Acts”says: • Employees, with a reasonable basis for believing such acts have occurred, have a responsibility to report such beliefs to their supervisor, appropriate administrator or the Office of Internal Auditing and Management Consulting (x2636) • Contact UWF Police or Silent Witness • http://uwf.edu/uwfpolice/silentwitness.cfm

34. Ethics are YOUR responsibility • Trust, but verify • Be alert to Red Flags of Fraud • Silence is NOT Golden

35. Questions? Betsy Bowers, CIA, CFE, CGFM, CIG University of West Florida Internal Auditing & Management Consulting 11000 University Parkway, Bldg 20W Pensacola, FL 32514 850-474-2636 bbowers@uwf.edu