State and local governments have fraud just like other industries and organizations. In fact, according to the Association of Certified Fraud Examiners’ (ACFE) most recent 2016 Report to the Nations, “government and public administration” was second only to “banking and financial services” when it came to the number of cases of fraud reported to the ACFE by type of industry. The ACFE reported the median loss in 2016 for governmental entities at $133,000. So, we thought it would be interesting to look at the most common government fraud schemes..
Corruption and billing schemes
It turns out that corruption and billing schemes are the two most popular fraud schemes at these organizations. Corruption accounted for 38.4% of cases, and 25.3% were due to billing schemes.
Corruption schemes are those denoted as conflicts of interest, bribery, illegal gratuities and economic extortion. It is important to combat these schemes by:
- Maintaining transparency with vendors in establishing procurement policies and codes of conduct with employees that handle procurement and make procurement decisions
- Including members of the accounting and budgeting department that are not involved with procurement to review all procedures to ensure they were met according to your government’s thresholds and required approvals
- Providing your governing board with large contract approvals, to be noted in your minutes
- Making all employees disclose any conflicts of interest they may have with potential vendors or customers
Billing schemes related to fraudulent disbursements may involve shell companies, personal purchases and/or non-accomplice vendors. You can combat some of these schemes by:
- Having a thorough background review of new vendors the government is using
- Making sure the vendor has a legitimate address, not a P.O. Box
- Making sure the vendor is incorporated with the State, and they have an EIN
- Reviewing the owners for the vendor and cross checking them with employees at the government
- Making sure personal purchases are detected with proper review of requisitions, purchase orders, invoices, delivery slips, packaging slips, etc.
- Making sure accounts payable employees take vacations and their duties are being done by separate individuals
If you want to know more about government specific schemes and what is popular amongst government fraudsters, be sure to mark your calendar to attend our December 2017 presentation on Government Fraud and an Update to the Green Book. Keep an eye on our CPE Opportunities page to sign up.
Brian Hemmerle, CPA, CFE