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Flirting with Fraud

The Argus Observer reports that an audit has faulted a former Oregon district attorney (DA) for reimbursing witnesses at a higher rate and for a wider range of expenses than required by state law. In his defense, the DA said the state’s minimum witness reimbursement amounts are insufficient to help low-income witnesses attend trials and he could not allow such financial issues to hinder the judicial process. The audit also found the DA’s office purchased US $43,000 worth of copiers without a competitive bidding process and failed to provide adequate protection for evidence that it was holding.

Lessons Learnt

 Although this situation may not be considered a full-blown fraud, the DA’s actions easily could have led to additional questionable activities or major fraud. Furthermore, the DA’s actions were influenced by the typical fraud precursors: opportunity, pressure, and rationalization.

Opportunity:  The DA was able to unilaterally contract for services and change reimbursement rates for court witnesses. Essentially, the DA had the ability — and perhaps no other options —to right perceived wrongs.

Pressure: The DA likely was likely subject to several job-related pressures (e.g., striving to do a good job under difficult conditions, the desire to be re-elected, and concern for the plight of crime victims).

Rationalization: The DA felt that the current rules and reimbursement rates were inadequate and that financial issues should not prevent the legal system from compensating the victims of and punishing those responsible for — criminal activities.

Internal auditors must understand that, when conditions are right, even well-meaning employees can engage in questionable — even fraudulent — activities. Internal auditing should comment on inappropriate conditions (e.g., mileage rates well below the norm) and ensure there are avenues for employees and management to raise concerns. If avenues to propose changes are nonexistent, employees may feel pressured to do whatever it takes to address intolerable situations in cases where changes is not practical or possible, employees should be informed of the reasons why.  Two- way communication is a key to reducing both the rationalization and pressure on employees to pursue inappropriate actions. Furthermore, detective and preventive controls that will reduce the opportunity are important elements of any fraud prevention program.

 Source: This article was extracted from http://www.theiia.org/intAuditor/fraud-findings/2011/03- 07-flirting-with-fraud/ on 4 May 2013.

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Fraud can be devastating for an organization. Our team can help identify and reduce opportunities for fraud by reviewing your internal audit procedures, recommending anti-fraud internal controls and conducting procedure reviews. If fraud is discovered, our firm has the personnel and experience to begin a timely investigation, prevent further loss and determine the full extent of the fraud. Because each investigation is different, we provide experts with the knowledge and experience that best fits your needs. We take pride in our ability to be an objective and unbiased voice during difficult times. Our independent perspective helps shareholders, boards, audit committees and legal counsel make critical decisions that can affect the future of an organization.

 WFO also provides an independent whistleblowing hotline which enables employees to raise genuine concerns about possible fraudulent or improper conduct in confidence, allowing their organisation to take prompt and effective action. A hotline not only helps avoid employees turning a blind eye to suspicions of unlawful activity, but it also reduces the risk of them going outside the organisation with their concerns, potentially causing unnecessary financial and reputational damage. This service helps companies and Board Audit Committees to meet the requirements of Section 32 of the Code of Corporate Governance as issued by the Securities and Exchange Commission.

 For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.

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