Financial Fraud in Government: What Happened to Ethics? Robert W. Walter, Esq.

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Noel Pierce
5 years ago
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1 Fiacial Fraud i Govermet: What Happeed to Ethics? Robert W. Walter, Esq. The views expressed by Robert W. Walter do ot ecessarily represet the views, positios, or opiios of the COCPA. These materials, ad the oral presetatio accompayig them, are for educatioal purposes oly ad do ot costitute accoutig or legal advice or create a accoutat-cliet or attorey-cliet relatioship Robert W. Walter 1

2 Our Learig Objectives Recall the differet types of public sector frauds Aalyze how high-profile public sector frauds were committed Assess the fraudster s characteristics, icludig ratioalizatios Idetity the factors that led to discovery of the fraud Recogize how toe at the top ad buildig a ethical culture ca impact your orgaizatio 2

3 The Origis of Fraud Pressure/Motivatio FRAUD Opportuity Ratioalizatio The cocept of the Fraud Triagle was developed by Doald Cressey, a oted crimiologist who first wrote about the Fraud Triagle i 1953.

4 Cotrastig the Differet Types of Fraud Asset Misappropriatio Fraud Stealig etity assets > False billig schemes > Iflated expese reports > Check tamperig > Payroll ad ghost employees > Cash skimmig ad stealig Asset misappropriatio frauds result i fiacial statemet misstatemets but these are a by-product of the asset misappropriatio Fiacial Statemet Fraud Employee itetioally >Causes misstatemet or > omissio of material fiacial iformatio ad/or disclosure, i the fiacial statemets ad reports to deceive fiacial statemet users Note: this type of fraud is described as beig coducted o behalf of the etity 4

Studies ad Statistics ACFE 2014 Report to the Natios

4% of frauds > Media Loss: $120,000 Fiacial statemet

millio KPMG It l 2013 Global Profiles of the

36-55 61% of fraud committed by employees 70% of

5 Studies ad Statistics ACFE 2014 Report to the Natios Asset misappropriatio frauds accouted for 85.4% of frauds > Media Loss: $120,000 Fiacial statemet fraud: oly 9% of frauds studied > Media Loss: $1 millio KPMG It l 2013 Global Profiles of the Fraudster 70% of fraud committed by persos ages % of fraud committed by employees 70% of frauds ivolve collusio with others 93% of frauds ivolve multiple trasactios 5

6 Fraud Duratio i Moths Source: ACFE 2014 Report to the Natios

7 How is Fraud Detected? Source: ACFE 2014 Report to the Natios

8 8 The Impact of Collusio

9 Who Commits Fraud i the Public Sector? Iteral actor Exteral actor Ukow Source: Seveth PwC Global Ecoomic Crime Survey 2014

10 Hot Topics i Public Sector Fraud Rita Crudwell ad the DC Tax Office frauds Cyber fraud Idetity theft to obtai tax refuds Welfare ad healthcare beefits fraud Procuremet fraud Bribery ad corruptio 10

11 Rita Crudwell ad the City of Dixo Backgroud Ø Rita s employmet history Ø Relatioship with audit firms How the fraud grows ad is cocealed How the fraud is discovered Outcomes for stakeholders Losses over $52 millio Lessos 11

Aother Record Fraud: The DC Office of Tax ad Reveue Backgroud Ø Harriette ad co-cospirators stole $48 millio Ø Fraud lasted 20 years From 2004 through 2007, fraudulet property tax refud checks for

12 Aother Record Fraud: The DC Office of Tax ad Reveue Backgroud Ø Harriette ad co-cospirators stole $48 millio Ø Fraud lasted 20 years From 2004 through 2007, fraudulet property tax refud checks for over $15 millio are issued to corporate accouts cotrolled by Harriette ad her relatives How the fraud is discovered Harriette is seteced to 17½ years, ad Jayrece Turbull seteced to 9 years Lessos 12

the scheme While [Harriette] recogizes that spreadig the wealth she obtaied through illegal coduct does ot

13 Aother Record Fraud: The DC Office of Tax ad Reveue Here is how her attorey explaied Harriette s coduct: "The ability to play the role of beefactor was a particularly strog motivatig factor i the cotiuatio of the scheme While [Harriette] recogizes that spreadig the wealth she obtaied through illegal coduct does ot justify or excuse the coduct, it is equally clear that Ms. Walters was geuiely desirous of helpig others." 13

Cyberfraud 100 % 229 2/3 40 Percetage of recet major breaches ivolve the use of valid credetials (eg isiders or compromised isider credetials) Average umber of days from compromise to detectio 2/3 of

14 Cyberfraud 100 % 229 2/3 40 Percetage of recet major breaches ivolve the use of valid credetials (eg isiders or compromised isider credetials) Average umber of days from compromise to detectio 2/3 of detectios came from exteral sources, that is, the compromised orgaisatio did ot detect the evet(s) Average umber of systems are touched/ivolved as part of a sigificat breach s have a log way to go before their defeces ca Merza M., 2014, Operatioalizig advaced threat defese, ad Goldberg J, Good guys vs bad guys usig data to couteract advaced threats, papers preseted at Spluk.Cof2014, Las Vegas, August 2014, ad PwC Seveth PwC Global Ecoomic Crime Survey 2014.

15 Recet Cyberfraud Cases OPM suffers massive loss of data o approximately 4 millio curret ad former federal employees Charles Ecclesto, former employee of U.S. Departmet of Eergy ad NRC, charged i May 2015 with spearphishig attack o DOE employee accouts Spear-phishig is sedig a covicig to recipiets that appears to be from a trusted source that ifects the recipiet s computer with a virus Ecclesto was seekig access to classified iformatio that he iteded to pass o or make available to foreig govermets Charges iclude wire fraud (up to 20 years imprisomet) ad uauthorized access to computers (10 years)

16 Idetity theft to obtai tax refuds O August 14, 2015, Colorado Attorey Geeral aouces crimial charges agaist Zathia Woodard (a.k.a. Zathia Filey), Jorda Shead, Sorletta Capri Shead ad Jaae Cruz The defedats posed as a legitimate tax preparatio service, ad used this cover to obtai tax ad persoal idetificatio iformatio The defedats iflated icome to maximize eared icome credits ad refuds CO Departmet of Reveue Discovery staff discover fraud Victims iclude Colorado, U.S., ad Wells Fargo Losses over $1 millio 16

17 The Violet Joes Case: Beefit Fraud at its Worst Violet works at Florida DCF Violet issues electroic beefit cards to herself ad her two sisters i ames of families whose cases should have bee closed Scheme lasts almost three years ad results i losses of over $1.54 millio eough to feed 8,810 eedy families for a moth Violet seteced to 17 years, ad her sisters each get seteced to 10 years The case of Susa Wolfe 17

18 Procuremet Fraud i the Public Sector Source: Seveth PwC Global Ecoomic Crime Survey 2014; percetages add to more tha 100% due to overlappig forms of procuremet fraud 18

19 The Case of the Former Coloels Four retired Army Natioal Guard (ANG) coloels charged i July 2015 with bribig a active duty coloel to direct $5.5 millio i cotracts to their compay, Military Persoel Services Corporatio (MPSC) Alleged bribes were to be cocealed by MPSC hirig active duty coloel after he retired from ANG ad callig the paymets icetive fees or bouses Active duty coloel provided iside pricig iformatio that eabled MPSC to raise oe bid by $800,000 Active duty coloel paid $55,000 ad pled guilty i September 2014 Idictmet recites coversatios at meetigs (!) 19

20 Ethics How ca you create ad ecourage a ethical eviromet? How is toe at the top created? Adelphia foresic audit Walk the walk What creates fraud icetives? 20

21 Fraud Deterrece Why ot prevetio? The importace of prosecutig perpetrators Aalytics ad cotrols Whistleblowig 21

22 Questios & Coclusios 22

Internal Control Framework

Internal Control Framework Iteral Cotrol Framework NMASBO Boot Camp October 2017 Make up of participats Superitedets Aspirig Superitedets School Districts Charter Schools Former Coaches 1 Take Away Items A iteral cotrol system is