Values and Ethics as a Public Sector Fraud Control Financial Management Institute June Allen Tait, CA, CFI Senior Investigations Manager Ontario Internal Audit Division Ministry of Finance

2 Objective of Session Discuss theoretical concepts Review case studies Presentation designed to foster debate Presentation not designed to provide a “one size fits all” answer

3 Terminology Values: something of importance (individually subjective) Ethics: code of behavior (organizational influence, personal interpretation) Fraud: defined by Criminal Code of Canada

4 Public Service – Unique Characteristics Regulatory function Mandatory service provider Monopoly Client service expectations (taxes v prices)

5 Impact – Public Service and Ethics High client service expectations (monopoly and taxes paid) High level of ethics expected COI double standard – preferred vendors private sector – OK; public sector - scandal Lack of perspective – Corporate upscale lunches OK; public sector expense coffee – scandal

6 Sources of Public Sector Fraud Risk Internal External

7 Types of Fraud Risk Monetary Information Granting of rights and approvals (i.e. zoning)

8 How are Values and Ethics Used as a Fraud Control in this Environment? Senior management has responsibility to set and meet ethical principles Provides staff with guidance Sound ethics should support staff to develop values consistent with ethical principles Actions should satisfy staff as taxpayer, not as employee

9 Specific Measures PSOA provides whistleblower process OPS provides training and a supportive culture Central functions (OIAD, Controllership, IT Security, HR) provide training and proactive fraud detection services Investigative protocols exist – fact gatherers, have cleared wrongly accused as well as helped victim Ministries address wrong doing

10 Case Study One – Not Petty Year end cheque to replenish petty cash cleared 10 days after year end Clerk could not balance Put in own money to cover, did not tell supervisor Fraud – no Principle – employee “my error so I pay” – ethical Supervisor – non disclosure = deception = not ethical employee

11 Case Study 2 – How to Procure an Investigation of Your Actions Multi year project Technically complex Limited number of qualified providers

12 Case Study 2 – Project Management Decisions Required annual budget approval for subsequent years Multi milestones established within each year – prudent project management Distinct projects put out for tender – competitive price/avoid technical dependence

13 Case Study 2 – Decision Impact Experience heavily weighted criteria Same vendor won all tenders DOA circumvented by design of milestones Technical dependence created

14 Case Study 2 - Rationale Work was good Prices were reasonable for industry New supplier could not have assumed work mid stream Above 3 points validated Nothing wrong except optics

15 Case Study 2 – However… Why was personal relationship not disclosed? Why were competing bids not from legitimate alternate vendors? Why was project split at a consistent threshold just below a higher DOA? Is this more than optics?

16 Case Study 3 – Classic Conundrum Generalization 1: a majority of the public expect government regulation to protect natural resources Generalization 2: the public has a growing acceptance of targeted government revenue generation to reduce general government expenditures Generalization 3: a model of regulation and revenue generation is laudable

17 Case Study 3 – Setting the Stage Natural attractions require infrastructure to support tourism Tourism is good for the economy Private sector investment needed Public sector must regulate development Public sector needs to generate revenue

18 Case Study 3 - Issue Public sector rejects a private sector proposal to protect the natural attraction Private sector disputes decision – alleges suppression of competition Public sector announces revenue generation program Private sector alleges abuse of regulatory authority to harm private sector

19 Case Study 3 - Result Inherent conflict created by merging of 2 individually supportable public sector goals Virtually any decision of this type will be disputed by a party based on their value (protection or profit)

20 Conclusions Public Sector works in a challenging environment Regulatory powers will continue to be required Values and Ethics can help manage fraud risk Values and ethics will not resolve all challenges

21 Case Study 1 – Conclusion Demonstrates subjectivity of values on perceptions Common set of facts, 2 different interpretations Difference – penalty v disclosure

22 Case Study 2 – Conclusion Decision justified on selective facts Decision questionable in relation to all facts Difference of opinion on values and ethics Fraudulent acts may exist

23 Case Study 3 - Conclusion Personal value decisions can lead to difference of opinion on ethics of decision made Questionable ethics not a fraud by definition

24 Overall Conclusions Values can be personal and subjective Articulation of values helps interpretation of public sector decisions Ethics an important reference to support values Important tools to aid in fraud prevention, however, challenges will remain

25 Questions?