Fraud Red Flags and What you Can Do

Fraud Red Flags and What you Can Do NCF FGFOA Annual Meeting 4/19/17 John Byrd, CPA, CIA, CFE, CGAP, CRMA, CBM Financial Team Lead/Interim Director UF Health Shands Audit Services 12/6/2020 2

Define “FRAUD” Legal Definition: “A false representation of a matter of fact—whether by words or by conduct, by false or misleading allegations, or by concealment of what should have been disclosed—that deceives and is intended to deceive another so that the individual will act upon it to her or his legal injury” 12/6/2020 3

FRAUD TRIANGLE Values Reason Controls Diamond-- Capability Pentagon-- Arrogance 12/6/2020 4

Query 1? How many of you think that you don’t have any fraud in your entity?

FRAUD THOUGHTS? 1. Our controls prevent fraud, Controls make fraudsters change their methods. Most frauds are discovered by tips. 2. Fraud is committed by thieves, Thieves lie. 3. Our managers review reports. 4. Our people know what their fraud responsibilities are. 5. Most people would never commit fraud 6. We don’t have much fraud. 12/6/2020 6

Queries 2&3? As part of your entity’s governance internal controls how many of your entities have a fraud/compliance hot line? Follow-up question-- if so– do your employees know where to get it?

Query 4? And now the most important question …… Would your employees use it?

Have you heard these before? It was just a small thing– no big deal. That was a close call! Hope the commission doesn’t hear about that one. That’s the way we do things around here. Everybody else is doing it! That is the way we have always done it. If you do ---- you probably have a problem. 12/6/2020 9

Query 5? What is the biggest risk to your entity when it comes to fraud? I’ll argue it is … Reputational Risk 12/6/2020 10

TYPES OF GOVERNMENT FRAUD FINANCIAL • PROCUREMENT AND CONTRACTOR FRAUD • FALSE CLAIMS AND FALSE STATEMENTS • MEDICARE/MEDICAID FRAUD • BRIBERY • EMBEZZLEMENT • ID THEFT • WIRE FRAUD NON-FINANCIAL • VOTER FRAUD • HR FRAUD • MPG FRAUD 12/6/2020 11

QUI TAM The False Claims Act rewards qui tam relators, or whistleblowers, by allowing them to receive a share of the award for cases in which they expose government fraud. Qui tam laws also offer protections for employees who report wrongdoing by their employers. Although most qui tam cases are in the areas of government healthcare or defense fraud, any type of government fraud can be brought to light by a whistleblower. 12/6/2020 12

Fraud Responsibilities 1. Senior Management a. Design programs/controls and implement b. Good culture and business environment c. Assess/monitor 2. Audit/Compliance Committee a. Ensure Senior Management had done their job b. Investigate 3. External Auditor a. Audit Plan/Reasonable Assurance/Detect b. Evaluate effectiveness of plan and impact on control environment 4. Everyone else associated with your organization a. Middle managers and staff b. Costomers 12/6/2020 13

Part of Management’s Plan 1. Develop an anti-fraud program • Assemble a team • Policy § Risk assessment– what could go wrong § Adopt a framework– COSO most prolific § Anti-fraud controls § Anti-fraud procedures § Education and Training § Build your response before it is needed 2. Send me an e-mail for tools 12/6/2020 14

What Do Fraudsters Do With the $$$? § Where was Ms. Clark from the COG at time of her pcard fraud discovery? 12/6/2020 15

Spot the non-Fraudster Carolyn Foster Chief Financial Officer Grand Prairie ISD-- Foster embezzled $600, 000 from the Kimberly Jean Miller Finance Philip Esformes $1 Billion in Ray Nagin– former mayor of NO and now federal Grand Prairie school district. Initially discovered by Director University of Miami. Joyce Levitt Chief Financial Officer Visit Rita Crundwell Treasurer / Comptroller Dixon, Illinois Medicaid and Medicare bribery inmate No. 32751 -034 Serving 10 years. Nagin had Faced with a 23 -count indictment coming from a $37 school district accountants that “questioned Embezzled $2. 3 Million over 10 her Philadelphia Visit Philadelphia is a publicly from 1983 to 2012 Had a sterling reputation with the city and kickback scheme. "This is the made $400, 000 per year as a Cox Cable executive million Ponzi scheme, former NFL defensive handling ofyears; Falsified invoices from a cash” funded marketing agency serving Philly commission In 2011, she was praised for her stewardship largest single criminal health care Convicted Bank Robber before he was sworn in as mayor in 2002, and took a back Will Allen has pleaded guilty to four charges. vendor – UM’s print company; tourism CFO embezzled $210, 000 over five of city funds, citing: “She looks after every tax dollar as if fraud case ever brought against Foster abused her authority as CFO to gain access to severe pay cut for the duration of his two terms in He played for the New York Giants, Miami Created fictitious company “Inter years Levitt reportedly resigned after a it were her own!” Had a salary of $80, 000 individuals by the Department of the vault in the administration building, where cash No Fraud office. Guilty of 20 of 21 counts with Katrina: Dolphins, and New England Patriots. Inc”; Funneled funds from UM to “disagreement over how money was being Embezzled $53. 7 Million over 22 years ($2. 44 Million/year) Justice, " Assistant Attorney was kept for teacher awards and other case needs. bribery, fraud and money laundering in connection Inter Inc bank account; Accessed spent” arose. Permitted to resign quietly after Sentenced to 19½ years in federal prison General of the Justice She ordered cash withdrawals from district bank with a kickback scheme involving city contractors. those funds from different agreeing to full restitution to the agency Department's Criminal Division. accounts and had it delivered by armored car to the fictitious company district offices 12/6/2020 16

Fraud Red Flags • Change in behavior/Lifestyles • Living beyond means a. Nice clothes b. Trips– Vegas • Not taking PTO • Lack of Tone at the Top • Overriding of controls • Lack of Segregation of duties • Financial Pressures • Unrealistic financial targets/expectations • Dissatisfied employees • Lack of training– Code of Conduct and that is it? 12/6/2020 17

Best Advice Ronald Regan and Internal Auditors everywhere: Trust but Verify 12/6/2020 18

Case You work in in the Alachua County computer lab. You need at least 10 new monitors. The vendor rep from the Company’s preferred vendor tells you that if you order the 10 new monitors, he will give you an 11 th to take home. Do you do anything? 12/6/2020 19

The 20 20'least 'mostcorrupt'countriesin inthe theworld The Cambodia 1 Denmark 92 The Canadian Trade Commissioner Service (TCS) in China has Myanmar 2 New Zealand 91 seen many cases in which a Canadian company is approached Zimbabwe 3 Finland 89 by an unknown Chinese “company” offering a lucrative Burundi Australia-- http: //www. abc. net. au/news/2017 -044 Sweden 87 business deal. The Chinese “company ”asks the Canadian Syria 03/commonwealth-warned-of-fraudulent-family-day-care 5 Norway 86 company to send representatives to China to sign a contract. Angola claims-foi/8411050 6 Switzerland 86 Once in China, the Canadian representatives are told that it is Guinea-Bissau 7 Singapore 84 Fraud is now the most commonly experienced customary for them to throw a banquet for the host England– fraud now the most common crime-- Haiti 8 Netherlands 83 offence in the country, the annual Crime Survey for “company”, pay a notary fee, and buy gifts for the “company” NSW Education Department warned Federal http: //economia. icaew. com/en/news/january-2017/fraud-now. Venezuela 9 Luxembourg 82 England Wales by the Office of National Statistics officials. Government about 'fraudulent and criminal most-common-crime-in-england-wales-cyber-crime-office. Yemen 10 Canada 81 (ONS) found, after it included cybercrime and fraud By now, you have probably realized that the Canadian behaviour' in the family day care system of-national-statistics Eritrea 11 Australia 80 questions in the crime survey for the first time company is not dealing with a legitimate Chinese company. In Libya 12 Germany 79 China-- http: //tradecommissioner. gc. ca/china-chine/marketfact, once they return home, the Canadian representatives will Uzbekistan 13 Iceland 79 facts-faits-sur-le-marche/148081. aspx? lang=eng discover that there was no legitimate deal. Instead, they were Turkmenistan 14 United Kingdom 78 conned into flying to China, buying gifts, and paying a notary Iraq 15 Belgium 76 fee. Furthermore, they do not have a company to sue in China. The rest of the world-- http: //www. businessinsider. com/map. South Sudan 16 Japan 76 of-worlds-most-corrupt-countries-2017 -1 Afghanistan 17 Barbados 74 Sudan 18 Hong Kong 74 Korea (North) 19 Ireland 74 FCPA 1977 Somalia 20 United States 74 NOT JUST IN THE US 12/6/2020 20

MONITORING IDEAS 1. What can go wrong in your area of authority 2. Periodically review control procedures and behaviors a. Take reviewing reconciliations seriously– especially suspense and clearing accounts b. review all management estimates for variances c. all overrides d. Top travelers 3. If #2 fails– what will detect that this is not being done 4. Who are the top and worst performers and why? 5. Think like a thief 12/6/2020 21

Takeaways • You are very likely to have fraud– you have to recognize it • Ethics and “Tone at the Top” play a huge role • Fraud HAS to be reported and prosecuted • Huge Reputational risk • Do NOT assume 12/6/2020 22

Contact Information John Byrd, UF Health Shands a. 352 -627 -5000 b. byrdjh@shands. ufl. edu Also-- Shameless plug for interns 12/6/2020 23

The emerging workforce Considering all the rules that shouldn’t be broken at school, how often do you feel you have to break them to succeed in school? 38% said at least sometimes 1 1 (response categories: not sure, never, sometimes, often, always) * 2007 Junior Achievement / Deloitte Teen Ethics Survey

The emerging workforce How often do you consider the following activities acceptable AT LEAST SOMETIMES? 1 1 (response categories: not sure, never, sometimes, often, always) 23% Behaving violently towards another person 5% Stealing from a store 47% Illegally downloading music * 2007 Junior Achievement / Deloitte Teen Ethics Survey

TURN UP THE HEAT Skin Color Flushing/Blotching Perspiration

SILENCE / PAUSES / GARBLING o When cornered, interviewees become VERY uncomfortable with silence. Dedicated pauses by the interviewer can lead to rambling and continued responses – USE THIS!! o Embrace the silence! o Eye contact is critical. . . But don’t be psycho

BODY MOTION / STROKING o Stress from deception builds energy that the body wants to release – this leads to involuntary fidgeting and squirming – tug the collar? ? o Stroking is a common indicator of discomfort o Interviewee will “stroke” their face, neck, legs, arms (twirl hair) to provide comfort – often involuntary

EYE CONTACT A COMMON MISCONCEPTION

Traits of Successful Interviewers (a. k. a. Information Gatherers) Engaging Inviting / Open Flexible Positive Attitude Imaginative Intuitive Curious Skeptical Theatrical Skills?