Fraud is a deliberate act (or failure to act) with the intention of obtaining an unauthorized benefit, either for oneself or for the institution, by using deception or false suggestions or suppression of 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.
Examples of fraudulent acts include, but are not limited to, the following:
- Forgery or alteration of documents
- Unauthorized alteration or manipulation of computer files
- Fraudulent financial reporting
- Misappropriation or misuse of University resources (e.g., funds, supplies, equipment, facilities, services, inventory or other assets)
- Authorization or receipt of payment for goods not received or services not performed
- Authorization or receipt of unearned wages or benefits
- Conflict of interest, ethics violations
Employees who commit fraud generally are able to do so because there is opportunity, pressure, and rationalization.
Opportunity is generally provided through weaknesses in the internal controls.
Some examples include inadequate or no
- Supervision and review
- Separation of duties
- Management approval
- System controls
Pressure (or motive) can be imposed due to
- Personal financial problems; unforeseen expenses
- Personal vices/addictions such as gambling, drugs, shopping, etc.
- Unrealistic deadlines and performance goals
Rationalization occurs when the individual develops a justification for their fraudulent activities. The rationalization varies by case and individual.
Some examples include:
- "I really need this money and I'll pay it back when I get my paycheck."
- "Other people are doing it."
- "I didn't get a raise. The University owes me."
Breaking the Fraud Triangle is the key to fraud deterrence. Breaking the Fraud Triangle entails removing one of the elements in the fraud triangle in order to reduce the likelihood of fraudulent activities. "Of the three elements, removal of Opportunity is most directly affected by the system of internal controls and generally provides the most actionable route to deterrence of fraud" (Cendrowski, Martin, Petro, The Handbook of Fraud Deterrence).
Managers and employees responsible for stewardship of University resources should be aware of the red flags for fraud. These are warning signs that may indicate that fraud risk is higher. They are not evidence that fraud is actually occurring. The existence of one or two flags is not something to be overly concerned about. However, if multiple flags are present and accounting irregularities or weak controls are identified, then the Internal Audit department should be contacted.
Examples of red flags include, but are not limited to, the following:
Employee Red Flags
- Employee lifestyle changes: expensive cars, jewelry, homes, clothes
- Significant personal debt and credit problems
- Behavioral changes - These may be an indication of drugs, alcohol, gambling, or just fear of losing the job
- High employee turnover, especially in those areas which are more vulnerable to fraud
- Refusal to take vacation or sick leave
- Lack of segregation of duties in a vulnerable area
Management Red Flags
- Management frequently overrides internal controls
- Management decisions are dominated by an individual or small group
- Managers display significant disrespect for regulatory bodies
- Policies and procedures are not documented or enforced
- Weak internal control environment
- Accounting personnel are lax or inexperienced in their duties
- Decentralization without adequate monitoring
- Excessive number of checking accounts; frequent changes in banking accounts
- Excessive number of year end transactions; unnecessarily convoluted transactions
- High employee turnover rate; low employee morale
- Refusal to use serial numbered documents (receipts)
- Compensation program that is out of proportion
- Photocopied or missing documents
- Reluctance to provide information to, or engage in frequent disputes with, auditors
Any employee who suspects that dishonest, unethical, or fraudulent activity is occurring should not attempt to personally contact the suspected individual in an effort to determine facts, conduct investigations or interviews /interrogations. Care must be taken to avoid mistaken accusations or alerting suspected individuals that an investigation may be under way.
The University has a fraud policy and a procedure established to provide ways to report behaviors which may be fraudulent or unethical. We recommend you review the policy to determine the appropriate action for the situation. The identity of the reporting individual will be kept confidential or anonymous as explained in the whistleblower protection provisions of the Fraud Policy. A Fraud Hotline link is also provided from the home page of this web site.