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Reporting and Investigating Improper Governmental Activities Business Officer Institute Patrick Reed – University Auditor University of California http://www.ucop.edu/audit Business Officer Institute (Reporting and Investigating) 12/03

Agenda/Topics to Be Covered: 

Agenda/Topics to Be Covered Importance of your role Who Investigates What? UC Whistleblower Policies Do’s and Don’ts Exercising Judgment Signs of Fraud

ASSOCIATION OF FRAUD EXAMINERS’ CONCLUSION ON DETECTING FRAUD: 

ASSOCIATION OF FRAUD EXAMINERS’ CONCLUSION ON DETECTING FRAUD “Relatively few fraud and abuse offenses are discovered through routine audits. Most fraud is uncovered as a result of tips and complaints from other employees.” Source: Association of Certified Fraud Examiners, 1996

UC AUDIT INVESTIGATION SOURCES: 

UC AUDIT INVESTIGATION SOURCES University of California

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University of California

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Who Performs Investigations at UC? Academic Personnel Animal Research Office Disability Coordinator Environmental Health & Safety Health Sciences Compliance Officer Human Resources- - EEOC - Labor Relations - HR Risk Management Student Judicial Affairs Institutional Review Board Internal Audit Management Overseeing Ad Hoc external process Medical Staff NCAA Compliance Officer Office of the General Counsel Privilege & Tenure Committee Research Administration Retaliation Complaint Officer Title IX Officer University Police University of California

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Policy on Reporting and Investigating Allegations of Suspected Improper Governmental Activities See Accompanying Overview of Policies University of California

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Policy Objective: To adhere to the spirit of the state whistleblower statutes by creating 1) an environment in which suspected improprieties are brought forward without fear of retaliation and 2) a mechanism that ensures an appropriate institutional response to all suspected improprieties (not just whistleblower reports). University of California

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Investigations Policy Overview Reporting Process=Funnel to LDO Triage Process by LDO and I-Group Investigation by appropriate jurisdictions OR Referral to Management* Communications, Coordination & Monitoring by LDO Report to management, IGA source and others as appropriate * If Investigation criteria not met--“if true” & probable cause. University of California

Definitions: : 

Definitions: Protected disclosure* – any good faith communication that discloses or demonstrates an intention to disclose information that may evidence (1) an improper act or (2) any condition that may significantly threaten the health or safety of employees or the public if the disclosure or intention to disclose was made for the purpose of remedying that condition. * Not just whistleblowers University of California

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Key Concepts & Guidance Can be oral Can be made to line management OR University official with implied authority to act If not recognized as such when made, danger of re- characterization as such when retaliation complaint is made “for the purpose of remedying that condition” should normally be assumed Malicious intent does not nullify potential validity of allegations. Frivolous complaints may themselves be IGA’s University of California

WHAT TO DO WHEN CONFRONTED WITH WHISTLEBLOWER ALLEGATIONS?DO’s: 

WHAT TO DO WHEN CONFRONTED WITH WHISTLEBLOWER ALLEGATIONS? DO’s Learn UC Policy and reporting channels Recognize and be alert to informal communications of allegations (protected disclosures) Notify as appropriate: Locally Designated Official Internal Audit Human Resources Campus police in cases of theft or breach of physical security

WHAT TO DO WHEN CONFRONTED WITH WHISTLEBLOWER ALLEGATIONS?DO’s: 

WHAT TO DO WHEN CONFRONTED WITH WHISTLEBLOWER ALLEGATIONS? DO’s Notify senior management as appropriate Contact Internal Audit and Human Resources before taking any personnel action Think about but don’t act on first steps Act with speed Hold the matter confidential

WHAT TO DO WHEN CONFRONTED WITH WHISTLEBLOWER ALLEGATIONS?DON’T’S: 

Dismiss the matter out of hand Launch your own investigation Confront the accused or otherwise tip them off Disclose the matter to any unnecessary parties Try to settle or resolve the matter yourself WHAT TO DO WHEN CONFRONTED WITH WHISTLEBLOWER ALLEGATIONS? DON’T’S

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What is “appropriate judgment”? Managers have to be allowed to manage—to do their jobs Guidance can’t be absolute—there is no way to remove judgment from the equation However, caution is urged to error on the side of disclosure— the manager needs to be held accountable for failing to report matters that later surface as surprises. A decision not to report is not a decision not to act, but a decision that the matter can be resolved under the person’s own authority. If “dealing with the matter” requires activities outside the scope of normal supervision this is probably something for investigators to do. University of California

Avoiding Becoming the Subject  of a Financial Investigation: 

Avoiding Becoming the Subject of a Financial Investigation Document, Document, Document Disclose, Disclose, Disclose (fiat lux) Manage the Business Not Just the Program Don’t Falsify the Books and Records

Personal Tests: 

Personal Tests Wall Street Journal Test

Personal Tests: 

Personal Tests Mom Test

Personal Tests: 

Personal Tests CAN YOU DO IT WITH SOMEONE WATCHING?

Personal Tests: 

Personal Tests Make It Policy Test

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Signs of Fraud Business Officers Institute

CHARACTERISTICS OF CLASSIC EMBEZZLERS: 

Usually work their crimes alone. Tend to be compulsive (gambling, abusing alcohol/drugs). Spend money freely (their own and/or the University’s). CHARACTERISTICS OF CLASSIC EMBEZZLERS

CHARACTERISTICS OF CLASSIC EMBEZZLERS: 

Work themselves into favor by utilizing their compulsiveness on-the-job. Rationalize their thefts by thinking they are merely “borrowing.” CHARACTERISTICS OF CLASSIC EMBEZZLERS

CHARACTERISTICS OF CLASSIC EMBEZZLERS: 

Tend to repeat and escalate their crime. Exploit weaknesses in internal controls to cover up their crimes. Have ready access on-the-job to cash or its equivalent. CHARACTERISTICS OF CLASSIC EMBEZZLERS

ASSOCIATION OF CERTIFIED FRAUD EXAMINERS CONCLUSIONS(Perpetrators of Fraud): 

“There is a direct correlation between the employee’s age, sex, and position and the median loss due to fraud and abuse.” “The typical perpetrator was a college-educated white male.” Source: Association of Certified Fraud Examiners, 1996 ASSOCIATION OF CERTIFIED FRAUD EXAMINERS CONCLUSIONS (Perpetrators of Fraud)

DEMOGRAPHICSGENDER: 

Source: Association of Certified Fraud Examiners, 1996 Who Steals? Men - 75% Women - 25% How Much? DEMOGRAPHICS GENDER

DEMOGRAPHICS POSITION IN THE ORGANIZATION: 

Who Steals? Executives - 12% Managers - 30% Other - 58% How Much? Source: Association of Certified Fraud Examiners, 1996 DEMOGRAPHICS POSITION IN THE ORGANIZATION

DETECTING FRAUD RED FLAGS: 

Lifestyle and Personality Organizational Financial Documents Accountability and Control DETECTING FRAUD RED FLAGS

LIFESTYLE AND PERSONALITYRED FLAGS: 

Wheeler/Dealer Dominating Personality Living Beyond Means Poor Money Management Dissatisfied Worker Unable to Relax No Vacations or Sick Time Close Customer/ Vendor Relationships Unusual or Change in Personality (alcohol, drugs, sleep, irritable, defensive, argumentative) Too Good to Be True Performance Excessive Overtime From Harvard Internal Audit Home Page LIFESTYLE AND PERSONALITY RED FLAGS

ORGANIZATIONALRED FLAGS: 

No Communication of Expectations Too Much Trust in Key Employees Lack of Proper Authorization Procedures Lack of Attention to Detail Changes in Organizational Structure Tendency Toward Crisis Management From Harvard Internal Audit Home Page ORGANIZATIONAL RED FLAGS

FINANCIAL DOCUMENT RED FLAGS: 

Missing Documents Alteration of Documents Excessive Number of Voided Documents Documents Not Numerically Controlled Questionable Handwriting or Authorization Duplicate Payments Inordinate Use of Form 5’s Unusual Billing Addresses or Arrangements Address of Employee Same as Vendor Duplicate or “Home Made” Photocopied Invoices From Harvard Internal Audit Home Page FINANCIAL DOCUMENT RED FLAGS

ACCOUNTABILITY AND CONTROLRED FLAGS: 

Lack of Separation of Duties Lack of Physical Security and/or Key Control Weak Links in Chain of Controls and Accountability Missing Independent Checks on Performance Lax Management Style Poor System Design Inadequate Training From Harvard Internal Audit Home Page ACCOUNTABILITY AND CONTROL RED FLAGS

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Reporting and Investigating Improper Governmental Activities Business Officer Institute Patrick Reed – University Auditor University of California http://www.ucop.edu/audit Business Officer Institute (Reporting and Investigating) 12/03