As an ASU employee, you are responsible for ensuring funds, property and equipment are safeguarded from loss. One important underlying concept to be mindful of is the reality that fraud is possible in your organization. If you do not believe fraud is possible, you will not identify it even if it is clearly evident. Very often fraudulent acts are initially viewed as administrative errors because individuals cannot conceive of the existence of fraud particularly in organizations where there is a longtime affiliation with co-workers.
What is Fraud?
Fraud is a deliberate act (or failure to act) with the intention of obtaining an unauthorized benefit by using deception or false statements or suppression of the truth or other unethical means, which are believed and relied upon by others. Depriving another person or the institution of a benefit to which he/she/it is entitled by using any of the means described above also constitutes fraud.
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Fraud can be defined in a number of ways, including the following:
Fraud is the intentional misrepresentation or concealment of a material fact that results in financial or other damages to another party.
Fraud is the use of deception, false suggestions, suppression of the truth, or other unfair means, which is believed and relied upon to deprive another of property or money, resulting in a loss to the party that believed and relied upon such.
Fraud is the intentional deception perpetrated by individuals or organizations, either internal or external to the organization, which could benefit themselves, others, or the organization or which could cause detriment to others or the organization, including falsifying financial or other records to cover up the theft of money or other assets.
Why do People Commit Fraud?
Employees who commit fraud generally are able to do so because there is opportunity, pressure and rationalization. The phases of fraud are best illustrated by The Fraud Triangle below.
Employees who commit fraud generally are able to do so because there is opportunity, pressure, and a rationalization. Opportunity is generally provided through weaknesses in the internal controls. Some examples include inadequate or no:
Supervision
Separate of duties
Management approval
System controls
Pressure can be imposed due to:
Personal financial problems
Personal vices such as gambling, drugs, extensive debt, etc.
Unrealistic deadlines and performance goals
Rationalization occurs when the individual develops a justification for the fraudulent activities. The rationalization varies by case and individual. Some examples include:
“I really need this money and I’ll put it back when I get my paycheck.” In many cases they replace the money only to take more later and not repay it.
“I’d rather have the company on my back than the IRS.”
“I just can’t afford to lose everything – my home, car, everything.”
“Besides, the company owes me.”
How Does Fraud Impact the University?
Fraud hurts everyone. Fraud is a common risk that should not be ignored. Failure to do so will eventually result in damaging morale, jeopardizing the reputation of the university and raise questions about its fiduciary duties regarding funds provided by donors, government agencies, students, and parents. Fraud costs everyone through direct influence or indirectly through increased taxes and costs of products and services.
Common fraud schemes which occur at universities include the misuse of procurement cards (“p-cards”), padding expense accounts, listing fictitious vendors, rigging vendor bids, taking kickback and abusing payroll and overtime by fraudulent reporting of hours worked.
Who is Responsible for Deterring Fraud?
Management. Internal Audit is responsible for examining and evaluating the adequacy and the effectiveness of actions taken by management to fulfill this obligation. Deterrence consists of actions taken to discourage fraud and limit financial losses if it does occur. The principal mechanism for deterring fraud is strong internal controls (i.e., policies and procedures, segregation of duties, account reconciliations, etc.).
Who is Responsible for Detecting Fraud?
Fraud should be detected by personnel in the normal course of performing their duties, if strong controls exist. Internal auditors should have sufficient knowledge of fraud to ensure that they may identify indicators that fraud might have been committed. If significant control weaknesses are detected, additional tests conducted by internal auditors should include tests directed toward identification of other indicators of fraud. Internal auditors are not expected to have knowledge equivalent to that of a person whose primary responsibility is to detect and investigate fraud. Audit procedures alone, even when carried out with due professional care, do not guarantee that fraud will be detected.
Who is Responsible for Reporting Suspected or Actual Fraud?
Anyone within the University who has reasonable suspicions of an alleged fraud or actual evidence of a fraud. All employees have an obligation to ensure that the University is a well controlled environment free from wrongdoing or criminal activities.
How Should I report an Alleged Fraud?
An alleged fraud or financial misconduct should be reported to the supervisor, department head, or the Director of Internal Audit. Situations may exist where an individual may be concerned with reprisals and uncomfortable discussing these matters with their supervisor. To assist with these particular situates, the University utilizes EthicsPoint to provide you with a simple, risk-free way to anonymously and confidentially report any activity that may involve unethical or otherwise inappropriate behavior in violation of Alcorn State University’s established policies. You may access this service by visiting the ASU Ethics Line page for additional information or dialing toll-free 877-310-0424.
References:
Association of Certified Fraud Examiners – Report to the Nations