2. Fraud and the Workplace Insert audience, date, etc.

3. 2 Fraud and the Workplace After this workshop you will have an awareness of:  What fraud is and the impact it has  The characteristics of fraudsters  The indicators of potential fraud  The need to be alert to the possibility of fraud and what to do if you suspect it

4. 3 OCCUPATIONAL FRAUD “The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.” Source: Association of Certified Fraud Examiners

5. 4 Non-Shareable Problem (Incentive / Pressure) OpportunityRationalization For Fraud to Exist…

6. 5 The Cost of Fraud The Median Loss Caused by Fraud was $159,000 Costs U.S. Organizations an Estimated $652 Billion Annually An Estimated 5% of 2006 U.S. Gross Domestic Product Source: Association of Certified Fraud Examiners, 2006 At Harvard?

7. 6 Veritas? HUID anyone The vendor family Non-deposits Bogus bids How do you pay for your new tires? What do we not know?

8. 7 The Indirect Costs of Fraud  Loss of Productivity  Increased Government Intervention  Legal Costs  Damaged Careers and Reputations  Institution Reputation/Goodwill  Inability to Secure Funding or Donations

9. 8 Detection Sources Tip-off-34.2% By Accident-25.4% Internal Audit-20.2% Internal Controls-19.2% External Audit-12.0% Notified by Police- 3.8% Source: Association of Certified Fraud Examiners, 2006 Note: The sum of the percentages is greater than 100% as in some cases more than one detection source applied.

10. 9 Fraud and the Law Focus on: False Claims Act Qui Tam Suits – thru 09/06, 5,514 cases, $11B in settlements, Relator share of $1.8B $511.3M - FY07 Harvard University total expenditures on federal awards Source: 1. US Department of Justice. 2. HU OSP FY07 Annual Report

11. 10 What do people steal?  Time - Own/Other  Cash/Equipment/Material/Supplies  Space, Utilities, Use of Equipment, Materials, Supplies  Intellectual Property  Information - For Personal Gain  Name/Reputation

12. 11 Characteristics of Fraudsters  Usually work their crimes alone  Tend to be compulsive (gambling, abusing alcohol/drugs)  Spend money freely (their own and/or HU’s)

13. 12 Characteristics of Fraudsters  Rationalize their thefts by thinking they are merely borrowing or the money is owed to them  Tend to repeat and escalate their crime  Exploit weaknesses in internal controls to cover up their crimes  Have ready access on-the-job to cash or its equivalent

14. 13 Fraud Red Flags  Lifestyle and Personality  Organizational  Financial Documents  Accountability and Control

15. 14 Fraud Red Flags Lifestyle and Personality  Close Customer/Vendor Relationship  Unusual or Change in Personality (alcohol, drugs, sleep, irritable, defensive, argumentative)  Too Good to Be True Performance  Excessive Overtime

16. 15 Fraud Red Flags Lifestyle and Personality (cont)  Living Beyond Means  Poor Money Management  Dissatisfied Worker  Unable to Relax  No Vacations or Sick Time

17. 16 Fraud Red Flags Organizational  No Communication of Expectations  Too Much Trust in Key Employees  Lack of Proper Authorization Procedures  Lack of Attention to Detail  Changes in Organizational Structure  Tendency Toward Crisis Management

18. 17 Fraud Red Flags Financial Documents  Missing Documents  Alteration of Documents  Documents Not Numerically Controlled  Questionable Handwriting or Authorization  Duplicate Payments  Unusual Billing Addresses or Arrangements

19. 18 Fraud Red Flags Financial Documents (Cont)  Address of Employee Same as Vendor  Duplicate or “Home Made” Photocopied Invoices  Excessive Checks to Cash  Pattern of Second Endorsements on Payroll Checks  Excessive Spoilage/Damaged Goods  Failure to Reconcile Bank Accounts

20. 19 Fraud Red Flags Accountability and Control  Lack of Separation of Duties  Lack of Physical Security and/or Key Control  Weak Links in Chain of Controls and Accountability  Missing Independent Checks on Performance  Lax Management Style  Poor System Design  Inadequate Training

21. 20 Fraud Opportunity Checklist ASK YOURSELF:  How can I get a check issued or get my hands on cash?  What accounting documents are easiest to access and forge?  What deviations from acceptable business practices are possible?  How much review and supervision goes on to deter and detect fraud?  What are the weakest links in my department’s internal control?

22. 21 Fraud and Responsibilities Essential Points Everyone has a responsibility for internal controls and ethical behavior. Policies are important to the control environment; your responsibility to carry out policy directives is essential. Compliance with policy supports compliance with regulations Be aware of your environment – the risks and controls. The University has training programs to help you learn and understand policies. Ask questions to help maintain a control environment. Use resources to address concerns. Having good internal controls will make your job easier!

23. 22 Fraud and Responsibilities If you suspect fraud: DO Convey your suspicions to someone with appropriate experience and authority Deal with the matter promptly Cooperate fully with all investigations DO NOT Be afraid of raising your concerns Accuse any individual directly Try and investigate the matter yourself Tell anyone about your suspicions other than those with the appropriate authority

24. 23 University Resources Office: Phone: University Compliance HELPLINE(877) 694-2ASK http://vpt-web.harvard.edu/rmas/5_compliance/helpline.html http://vpt-web.harvard.edu/rmas/5_compliance/helpline.html University Ombuds Office (617) 495-7748 http://harvie.harvard.edu/working/solvingworkplaceproblems/university-ombuds.shtml Office of Human Resources (617) 496-2316 http://atwork.harvard.edu/ Office of the General Counsel (617) 495-1280 http://ogc.harvard.edu/ Risk Management & Audit Services(617) 495-3642 http://vpf-web.harvard.edu/rmas/index.html Office of the Controller (617) 495-2522 http://vpf-web.harvard.edu/ofs/index.shtml Office of Sponsored Programs (617) 495-5501 http://vpf-web.harvard.edu/osr/index.shtml

25. Fraud and the Workplace Financial Managers Forum – 01/16/08