Fraud Red Flags and Prevention Strategies

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 3/20/2025 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 3/20/2025 3

FRAUD TRIANGLE Values Reason Controls Diamond-- Capability Pentagon-- Arrogance 3/20/2025 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. 3/20/2025 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. 3/20/2025 9

Query 5? What is the biggest risk to your entity when it comes to fraud? I ll argue it is Reputational Risk 3/20/2025 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 3/20/2025 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. 3/20/2025 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 3/20/2025 13

Part of Managements 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 3/20/2025 14

What Do Fraudsters Do With the $$$? Where was Ms. Clark from the COG at time of her pcard fraud discovery? 3/20/2025 15

Spot the non-Fraudster Carolyn Foster Chief Financial Officer Grand Prairie ISD-- Foster embezzled $600,000 from the Grand Prairie school district. Initially discovered by school district accountants that questioned her handling of cash made $400,000 per year as a Cox Cable executive before he was sworn in as mayor in 2002, and took a severe pay cut for the duration of his two terms in office. Guilty of 20 of 21 counts with Katrina: bribery, fraud and money laundering in connection with a kickback scheme involving city contractors. agreeing to full restitution to the agency Kimberly Jean Miller Finance Director University of Miami. Embezzled $2.3 Million over 10 years; Falsified invoices from a vendor UM s print company; Created fictitious company Inter Inc ; Funneled funds from UM to Inter Inc bank account; Accessed those funds from different bank accounts and had it delivered by armored car Philip Esformes $1 Billion in Medicaid and Medicare bribery and kickback scheme. "This is the largest single criminal health care fraud case ever brought against individuals by the Department of Justice," Assistant Attorney General of the Justice Department's Criminal Division. fictitious company to the district offices Ray Nagin former mayor of NO and now federal inmate No. 32751-034 Serving 10 years. Nagin had Philadelphia Visit Philadelphia is a publicly funded marketing agency serving Philly tourism CFO embezzled $210,000 over five years Levitt reportedly resigned after a disagreement over how money was being spent arose. Permitted to resign quietly after Sentenced to 19 years in federal prison Joyce Levitt Chief Financial Officer Visit Faced with a 23-count indictment coming from a $37 million Ponzi scheme, former NFL defensive back Will Allen has pleaded guilty to four charges. He played for the New York Giants, Miami Dolphins, and New England Patriots. Embezzled $53.7 Million over 22 years ($2.44 Million/year) Rita Crundwell Treasurer / Comptroller Dixon, Illinois from 1983 to 2012 Had a sterling reputation with the city commission In 2011, she was praised for her stewardship of city funds, citing: She looks after every tax dollar as if it were her own! Had a salary of $80,000 No Fraud Convicted Bank Robber Foster abused her authority as CFO to gain access to the vault in the administration building, where cash was kept for teacher awards and other case needs. She ordered cash withdrawals from district 3/20/2025 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? 3/20/2025 17

Best Advice Ronald Regan and Internal Auditors everywhere: Trust but Verify 3/20/2025 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 11th to take home. Do you do anything? 3/20/2025 19

The 20 'least corrupt' countries in the world The 20 'most corrupt' countries in the world Cambodia Myanmar Zimbabwe Burundi NOT JUST IN THE US seen many cases in which a Canadian company is approached by an unknown Chinese company offering a lucrative business deal. The Chinese company asks the Canadian company to send representatives to China to sign a contract. Once in China, the Canadian representatives are told that it is customary for them to throw a banquet for the host company , pay a notary fee, and buy gifts for the company officials. By now, you have probably realized that the Canadian company is not dealing with a legitimate Chinese company. In fact, once they return home, the Canadian representatives will discover that there was no legitimate deal. Instead, they were conned into flying to China, buying gifts, and paying a notary fee. Furthermore, they do not have a company to sue in China. 15 Belgium 76 16 Japan 76 17 Barbados 74 18 Hong Kong 74 19 Ireland 74 20 United States 74 Somalia The Canadian Trade Commissioner Service (TCS) in China has 1 Denmark 92 2 New Zealand 91 3 Finland 89 4 Sweden 87 5 Norway 86 Syria Angola Guinea-Bissau Haiti Australia-- http://www.abc.net.au/news/2017-04- 03/commonwealth-warned-of-fraudulent-family-day-care- claims-foi/8411050 6 Switzerland 86 7 Singapore 84 8 Netherlands 83 9 Luxembourg 82 10 Canada 81 11 Australia 80 12 Germany 79 13 Iceland 79 14 United Kingdom 78 Turkmenistan Iraq South Sudan Afghanistan Sudan Korea (North) Fraud is now the most commonly experienced offence in the country, the annual Crime Survey for Venezuela Yemen England fraud now the most common crime-- http://economia.icaew.com/en/news/january-2017/fraud-now- most-common-crime-in-england-and-wales-cyber-crime- office-of-national-statistics behaviour' in the family day care system questions in the crime survey for the first time Libya NSW Education Department warned Federal Government about 'fraudulent and criminal England Wales by the Office of National Statistics (ONS) found, after it included cybercrime and fraud Eritrea China-- http://tradecommissioner.gc.ca/china-chine/market- facts-faits-sur-le-marche/148081.aspx?lang=eng Uzbekistan The rest of the world-- http://www.businessinsider.com/map- of-worlds-most-corrupt-countries-2017-1 FCPA 1977 3/20/2025 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 3/20/2025 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 3/20/2025 22

Contact Information John Byrd, UF Health Shands a. 352-627-5000 b. byrdjh@shands.ufl.edu Also-- Shameless plug for interns 3/20/2025 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 sometimes1 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 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 o

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?