Preventing Fraud and Mismanagement in Government

Transcription

1 Preventing Fraud and Mismanagement in Government Joseph R. Petrucelli Jonathan R. Peters

2 Introduction... 1 People Are Your Greatest Risk and Your Greatest Asset... 1 Focus of the Book... 3 Rules: Do They Stop Fraud and Mismanagement?... 5 MIRD: The Four Criteria to Prove Fraud... 6 Judgment... 7 Structures and Systems... 9 Developing Systems In Structure by Asking the Right Questions System and Structure Question Approach Tool AGFOT (Assisted Gorilla Fraud Observation Techniques) Chapter 1 Government and How It Works Learning Objectives Introduction Types and Forms of Local Government: An Example from New Jersey Politics, Public Operations, and Loss Global Forms of Government Revenue Functions within Governmental and Public Entities The Federal Government Fiscal Discipline Structure of Federal Debt State Governments Local Governments Public Agencies Public Authorities Government Via Concessions, Franchises, and Contract Work Public-Private Partnerships Conclusion Review Questions Review Answers Chapter 2 Public Finance and How Government Creates Cash Flow Learning Objectives Introduction Government Finance Case Study: Transportation Finance The Basic Rules of Forensic Accounting Cost of Collection Tax Collection Example Fuel Taxes Enforcement and Compliance: Tax Evasion Burden of Taxation Maturity Mismatching Fiscal Federalism PFDA User Fee versus Tax Pigouvian Taxes and Subsidies Government Revenue Sources Taxes Excise Taxes Property Taxes Personal Income Taxes Sales Taxes Fine Revenues Fees... 79

3 Transfer Payments Bonding and Borrowing Bond Structure Revenue Bonds General Obligation Bonds Core Issue: Government Spending Conclusion Review Questions Review Answers Chapter 3 Accounting for Government Learning Objectives Introduction Service Efforts and Accomplishments (SEA) Reporting Expectation Gaps Management-Driven Motivations Double-Entry Accounting Modified Accrual Basis Government Final Reporting Operational and Fiscal Accountability Management Discussions and Analysis Government Employees and Officials Responsibility to Find Inconsistencies and Irregularities Parallel Interest Conflicts Asset and Liability Recognition In Government Statement of Net Position Gordon Gekko Accounting Interfund Transfers Inflow and Outflow of Cash Related Statements Budgeting and One-Shot Accounting in Government Budget Manipulations Public and Private Sector Monopolistic Control Government Intervention (Override) The Odd and Unsettling Mix of Public and Private Capital Avert Tool Governmental Funds Government Funds Proprietary Fund Fiduciary Fund Case Study: Multiple Jobs and Double Dipping Future Pension Issues Fixed Assets and Long-Term Debts: Self-Balancing Accounts Assumption Based Principle Based Judgment Based President Obama s 2015 Spending Plan Ratio and Tables from a Government Perspective Financial Ratios Government-Wide Financial Statements Summary Reconciliation of Government-wide and Government Funds Financial Statements (GFFS) Financial Statement Communications Know Management OMB Circular A Conclusion Review Questions Review Answers ii

4 Chapter 4 Who Works in Government and What Is Their Motivation Learning Objectives Introduction Understanding People Government Workers Elected Officials Delegate Model Versus the Trustee Model of Representation Political Appointees Bureaucrats Nurturing Homegrown Gorillas The Care and Feeding of a Gorilla Gorilla Hunting, Capture, Control, and Banishment The Carrot and the Stick A Case Study in Too Much Carrot Eating Union Workers Unions as Gorillas Virtuous Public Servants PFDA Political Operatives Human Resources: The First Line of Defense Hiring Process Personnel Data Policies and Job Descriptions Job Descriptions Lead by Example Employee Relations Compensation and Benefits Training and Development Performance Management Payroll Typical Types of Frauds Segregation of Duties among HR, Payroll (Hiring and Paying), and Accounting Time Entry Management/Supervisory Review and Approval Security and Access Controls Human Resources Conclusion Review Questions Review Answers Chapter 5 Fraud in Public Agencies: Horse Trading or Stealing? Learning Objectives Introduction Understanding Government Fraud and Mismanagement Just How Pervasive Are Fraud and Corruption? Why Do Agencies Do What They Do? Who Motivates Policy? Government and Public Agency Frauds and Mismanagement Why? Types of Government and Public Agency Fraud Criminality and Intent Versus Ineptitude Auditor Versus Accountant Understanding Quantifiable Evidence More Likely Than Not Standard Reasonable Person Standard Identify, Record, and Communicate Categories of Waste Centralization iii

5 Centralization vs Decentralization of Government/Public Agency Internal Accounting Control Money and Power How Wealth Distribution Leads to Fraud How Donations Can Lead to Fraud Political Principles to Prevent Fraud Health Care Diversion Typical Health Care Frauds Improper Payments Meals and Entertainment: Directly Connected to a Public Entity s Operations Applicable Limitations Record-Keeping Requirements Churches and Political Campaign Activity Common Travel and Expense Reimbursement Fraud Schemes Systems and Structures That Can Potentially Prevent Expense Reimbursement Schemes and Abuse Bribery, Kickbacks, and Gratuities Frauds Making or Using False Statements Frauds Companies Conducting Business under Several Names Collusive Bidding Conspiracy to Defraud Disclosure of Proprietary Source Selection Sensitive Information Insufficient Delivery of Contracted Items Failure to Meet Specifications Common Schemes Rigging Specification Small Purchases Pattern Breaking Large Requirements into Smaller Ones Duplicate Payment Overstatement of Weights and Numbers Ordered Patterns in Expense Frauds Conclusion Review Questions Review Answers Chapter 6 Corrupt Policies and Actions Learning Objectives Introduction Corruption: Agency Thinking and Inbreeding Systematic Risk Why Does Wrongdoing Continue to Happen? Types of Corruption Found in Government Examining Demographic Factors for Corruption Potential Size of a Municipality Condition of the Local Economy Education Political Culture of the Municipality Corrupt Acts Corrupt Act 1: Money Makes the Government/Public Agency World Go Round Corrupt Act 2: Entitlement versus Earned (Rights) Social Security How the U.S. Government Spends HOW PEOPLE SPEND Political Risks Public Corruption Deregulation Banking Deregulation iv

6 Energy Deregulation Airline Deregulation CONCLUSION Review Questions Review Answers Chapter 7 Policing of Public Corruption and Fraud Learning Objectives Introduction Background on Internal Control Distinguishing Among Deterrence, Prevention, and Detection Back to Analyzing the Risk Beyond Numbers Financial Reporting Risk Operational Risk Compliance Risk Worms Warnings Operations Revolve Management System (WORMS) Policing and Understanding the Enforcement Gaps How to Preserve the Evidence of Fraud and Corruption in The Public Entities How to Present the Evidence in a Public Entity Fraud or Corruption Case Conclusion Review Questions Review Answers Chapter 8 Final Thoughts Learning Objectives Introduction Six Symbolic Shapes of Government: Organizational Symphony Fraud Can Happen At Any Time or Place First Story: Embezzling from Churches Second Story: Dixon, Illinois Third Story: Nick s Roast Beef The Warning System Five Categories of Fraud Misstatement of Revenues Misstatement of Expenditures Misstatement of Assets Inadequate Disclosures Misappropriation of Assets Why Public Entities Auditors/Accountants Fail to Detect Fraud A Simple Fraud Risk Plan for the Public Entity Fraud and Mismanagement Types, Signs, and Suggested Actions Approval Billing Cash Complaints Conflicts-of-Interest Risk Contract Bid Award Process: Request for Proposal (RFP) Procurement/Purchasing Bribery and Kickbacks Favoritism (Nepotism) Information (Disclosure) Middleman Fraud and Mismanagement Reputation (Rumors) Segregation (Overlap, Levels of Trust, Approval) Change Orders, Unusual Volume, Late Delivery, Subpar Goods and Services Risk Overview and Plan Compliance Checklist v

7 Conclusion Final Word Review Questions Review Answers Appendix Tables Table A.1 State Top Income Tax Rates Table A.2 Types of Government Revenue Glossary Index vi