1. Managing Fraud Risk in Higher Education 2014 UNC Fall Controller's Workshop November 10, 2014 David A. King, CPA, CFE – Director, Special Investigations North Carolina Office of the State Auditor

2. Session Objective Discuss challenges, trends, and strategies for managing fraud risk in higher education

3. Managing fraud risk requires awareness, tools, and proactive efforts, including collaboration with professional peers

4. Session Outline The Tone at the Top Examination of University Fraud Cases COSO Framework and the Audit Committee ACFE Report to the Nations Financial Aid Fraud Fraud Prevention and Mitigation

5. The Tone at the Top AICPA / ACFE Video: “The Tone at the Top”“The Tone at the Top” http://www.acfe.com/vid.aspx?id=4294974597

6. Steven Salbu Georgia Institute of Technology – Atlanta, GA

7. Four Things Leaders Can Do to Create An Ethical Climate within Their Organization

8. 1.Lead with Integrity –By Example

9. 2. State Clearly and Convincingly the Organization’s Ethical Requirements and Values

10. 3. Create a Path for Reporting Misdeeds (e.g., – a Whistleblower Hotline)

11. 4. Reward (at least recognize) Integrity

12. Are you in a university leadership role as a controller, accountant, financial professional?

13. What are you doing on your campus to promote an ethical culture among your peers?

14. From the Headlines……..

15. Audit Uncovers Suspected Fraud at Georgia Tech Audit Uncovers Suspected Fraud at Georgia Tech

16. Former Georgia Tech Employee Indicted on Fraud Charges

17. UC Berkeley Fires Administrator for Stealing Thousands to Pay for Kids’ Tuition

18. UNIVERSITY OF FLORIDA NUCLEAR ENGINEERING PROFESSOR AND WIFE CONVICTED OF FEDERAL CONTRACT FRAUD

19. Examination of Four University Fraud Cases Internal Control Deficiencies? Circumvention of Internal Controls? Management Override of Internal Controls?

20. The Elements of Fraud (The Fraud Triangle) Rationalization Pressure / Need Opportunity

21. The COSO Framework Control Environment Risk Assessment Control Activities Information and Communication Monitoring Activities

22. The Updated COSO Cube The

23. Control Activities Authorization of Transactions and Activities Segregation of Duties Use of Adequate Documents and Records Adequate Safeguards over Access to and Use of Assets and Records Independent Verification of Transactions

24. The COSO Framework and the Audit Committee

25. ACFE’s Report to the Nations According to the 2014 ACFE’s Report to the Nations – tips were the most common means by which occupational fraud was detected 45% of the fraud cases in the ACFE study were initially detected through tips 15% of the fraud cases were detected through management review

26. Initial Detection of Fraud Schemes

27. Whistleblower Hotlines (Federal – State – Universities)

28. The State Auditor’s Hotline The State Auditor maintains a toll-free telephone number to report allegations of improper governmental activities. 1-800-730-TIPS (8477) Webpage link: www.ncauditor.netwww.ncauditor.net

29. Data Mining / Predictive Analytics / Benford’s Law http://www.nigrini.com/

30. Financial Aid Fraud

31. Fraud Prevention and Detection Verify the deliverable – payments should always require adequate supporting documentation Know the people in your organization Perform proactive audits Focus on internal control Leverage technology – use data mining / data analysis

32. Fraud Prevention and Detection Internal Control / COSO Framework Management Control Employee Education and Training The Role of Human Resources in Selecting and Screening Employees Management Due Diligence in Selecting and Screening Employees Establishing and Maintaining an Ethical Workplace

33. Managing Fraud Risk Requires Effective Internal Controls and an Ethical Culture

34. Resources http://antifraud.aicpa.org/ http://www.acfe.com/home.asp http://www.coso.org/ http://www.acua.org/ http://www.theiia.org/

35. Contact Information David A. King, CPA, CFE Director of Special Investigations North Carolina Office of the State Auditor Phone (919) 807-7606 Email: david_king@ncauditor.net State Auditor’s Hotline: 800-730-TIPS (8477)