STATE OF GEORGIA OFFICE OF INSPECTOR GENERAL Fraud Risk Within State Government

Agenda History of Offices of Inspectors General Cost/Benefit of Inspectors General Authority of the State of Georgia OIG Define Fraud and Introduce Fraud Triangle Effects of the Recession Explain the relationship between fraud and the recession Preventing Occupational Fraud Takeaways

A Brief History of the Inspector General… Baron Friedrich Wilhelm August Heinrich Ferdinand von Steuben (September 17, 1730 – November 28, 1794)

Inspector General Act of 1978 Statutorily established the Federal Inspectors General (IG) Independent and objective units within most agencies Combat waste, fraud, and abuse in programs and operations through audits, investigations, inspections and evaluations

Are IG’s Worth Keeping Around? FY 2013 Approximate Savings = $51.8 Billion  Audits - $37 Billion  Investigative Receivables and Recoveries - $14.8 Billion FY 2013 Aggregate Budget =$2.5 Billion FY 2013 Return on Investment = $21

State of Georgia OIG Established via Executive Order in 2003 Mission is to promote accountability and integrity in state government Conducts administrative and criminal investigations of fraud, waste, abuse and corruption within the Executive Branch of state government Provides free fraud awareness training to state employees

State of Georgia OIG Authorities Authorities include:  Authority to enter upon the premises of any state agency at any point without prior announcement  Question any state employee serving in or anyone transacting business with a state agency  Inspect and copy any books, records, or papers in the possession of a state agency, unless otherwise prohibited by law

Is the State IG Worth Keeping Around?

What is Fraud? Any intentional or deliberate act to deprive another of property or money by guile, deception or other unfair means. - Association of Certified Fraud Examiners

A Focus on Fraud Organizations lose, on average, 5% of annual revenue Median Loss is $145,000/Government is $64,000 Fraud Schemes typically last 18 months before detection Approximately 95% of perpetrators have never been charged or convicted of a fraud-related offense

Why Does Fraud Occur? Opportunity Perceived Financial Pressure Rationalization Fraud Triangle

Pressure Created: The “Great Recession” The “Great Recession” occurred between 2007 and Million Jobs Lost Consumer spending experienced the most severe decline since WWII Median household income dropped 2.6%

Opportunity Created: Labor Market Slack

Primary Internal Control Weaknesses Lack of Internal Controls – 32.2% Lack of Management Review – 20% Override of Existing Internal Controls – 18.9% Poor Tone at the Top – 8.4% Lack of Competent Personnel in Oversight Roles – 7.1%

ACFE Study on the Recession and Fraud ACFE Study on the Recession’s Impact: 1. Fraud has increased since the recession A. 55% of Respondents reported an increase in fraud occurrences B. 49% reported an increase in dollar losses 2. Increase in fraud stems from increased pressure 3. Employees pose the greatest threat to organizational resources in the current economy 4. Fraud levels are expected to continue rising 5. Labor reductions are leaving holes in internal control systems 6. Companies have not cut spending on anti-fraud controls

Preventing Occupational Fraud Understand why fraud occurs Honestly assess your vulnerabilities Institute and maintain strong internal controls Education Create effective hotline for tips Effective employment policies Leadership counts

Takeaways The State OIG is here to HELP your agency Fraud could occur in any agency/department Remain vigilant at all times DO NOT substitute trust for strong internal controls Report red flags/anomalies for further review immediately Set a good tone at the top/leadership Educate/Train your employees on fraud awareness Always encourage strong employee morale

Contact Information Office of the State Inspector General 2 Martin Luther King, Jr., Drive, S.W West Tower Atlanta, Georgia Web: Telephone: Toll Free: 866-HELP OIG or Fax:

Who Has the First Question?