Fraud Awareness and theFraud Awareness and the Whistleblower PolicyWhistleblower Policy

Mike JensonDirector

Audit & Advisory Services

Quarterly Chairs’ MeetingQuarterly Chairs’ Meeting

February 4, 2004February 4, 2004

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Present SituationPresent Situation

Recovering economy Global National State-wide

Budget cuts Staff lay-offs No staff merits

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Inadequate segregation of duties

Lack of supervision, monitoring and reconciliation procedures

Short cuts – production oriented Policy and Law Non-compliance Rationalize fraudulent activities

Do More with Less…Do More with Less…

Fraud is CostlyFraud is CostlyFraud is CostlyFraud is Costly

Direct monetary costs/losses to the dept. Devastating (senior trusted employee) Question management skills Time and resources involved in investigation procedures Disciplinary action decisions Damaged careers and reputations Negative impact on staff morale Possible external agency audits Negative impact on future funding or donations Negative media exposure

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Headlines…..HeadachesHeadlines…..Headaches San Francisco Chronicle (August 1995) Embezzlement probe of UC Claims Manager – at least $500k gone Wall Street Journal (December 1996) Audit finds financial irregularities at UC Berkeley Business School Los Angeles Times (February 1997) Doctor who studied at UCI says her eggs were misused San Francisco Chronicle (July 1999) Fired UC Cashier Arrested in $4.7 million theft suspect financed

daughter's angel firm, police say Los Alamos National Laboratory (2003)

Procurement card issues The Press-Enterprise (December 1998)

Ex-UCR employee arrested – Nearly $20,000 was allegedly embezzled

The Press-Enterprise (February 2001)Former UCR employee sentenced to prison- Starting in 1996, she embezzled $188,563 via checks to persons not on the University payroll

Common Types of Fraud Common Types of Fraud

Procurement card Fictitious travel vouchers & purchase orders Unrecorded vacation and sick leave University resources used for personal gain Entertainment w/o legitimate business

purpose Claimed benefits for non-dependents Missing cash w/o forced entry Unrecorded cash collections Payroll issues

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Duties of Department ChairsDuties of Department Chairs

APM-245-4: A department chair is a faculty member who serves as the

academic leader and administrative head of a department of instruction or research, or a clinical service.

APM-245 Appendix A: As leader of the department, the chair has the following

duties:3. The appointee should be receptive to questions, complaints,

and suggestions from members of the department, both faculty and staff personnel, and from students, and should take appropriate action on them.

The chair’s administrative duties include the following:5. To prepare the budget and administer the financial affairs of

the department, in accord with University procedures.

Helpful HintsHelpful Hints

Be involved with finances Be aware of “red flags” of fraud Balance risk and controls Be ethical and do the right thing Implement fraud prevention

measures

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Strong internal controls Background checks on new

employees Continuing monitoring procedures Willingness to take action Employee training Independent reconciliation

procedures

Fraud Prevention MeasuresFraud Prevention Measures

Fraud Opportunity ChecklistFraud Opportunity Checklist

Ask Yourself: What deviations from acceptable

business practices are possible? Are there significant variations

from expected financial results? What are the weakest links in my

department’s internal controls?

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UC INVESTIGATION SOURCES FY 2003 CountUC INVESTIGATION SOURCES FY 2003 Count

Audit 5%Anonymous

4%

Whistleblower 25%

UC Police 4% Outside Party

7%

Management 55%

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Conclusion on Fraud DetectionConclusion on Fraud Detection

“ 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 Examiner, 1996

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Whistleblower PoliciesWhistleblower Policies

Policy on Reporting and Investigating Allegations of Policy on Reporting and Investigating Allegations of Suspected Improper Governmental Activities Suspected Improper Governmental Activities

and Policy for Protection of Whistleblowers From Policy for Protection of Whistleblowers From

Retaliation and Guidelines for Reviewing Retaliation Retaliation and Guidelines for Reviewing Retaliation ComplaintsComplaints (Whistleblower Protection Policy)

represent the University’s implementing policies for

the California Whistleblower Protection Act

Effective October 2002Effective October 2002

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POLICY OBJECTIVEPOLICY OBJECTIVE

To assure an appropriate INSTITUTIONAL response to any known or suspected impropriety and to create an environment that encourages candor while

protecting the rights of all parties

(i.e. whistleblowers, investigation participants, subjects and

investigators).

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Policy ObjectivePolicy Objective

UC values ethical and lawful conduct Policy designed to:

Encourage timely, safe, and open reporting of alleged wrongs

Ensure consistent and timely institutional response

Appropriate reporting of whistleblower investigations

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Improper Governmental ActivityImproper Governmental Activity

Any activity by a state agency or by an employee that is undertaken in the performance of the employee’s official duties, whether or not that action is within the scope of his or her employment, and that (1) is in violation of any state or federal law or regulation, including, but not limited to, corruption, malfeasance, bribery, theft of government property, fraudulent claims, fraud, coercion, conversion, malicious prosecution, misuse of government property, or willful omission to perform duty, or (2) is economically wasteful, or involves gross misconduct, incompetency, or inefficiency.

Serious or substantial violations of University policy may constitute improper governmental activities.

Must directly involve the University either as victim or perpetrator

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Illegal OrderIllegal Order

Any directive to violate or assist in violating an applicable federal,

state, or local law, rule or regulation or any order to work or cause others to work in conditions outside of their line of duty that

would unreasonably threaten the health or safety of employees or

the public.

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Any good faith communication that discloses or demonstrates an intention

to disclose information that may evidence:

1) an improper governmental activity; 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.

PROTECTED DISCLOSUREPROTECTED DISCLOSURE

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WhistleblowerWhistleblower

Person/entity making a protected disclosure (reporting party)

UC employees (academic personnel or staff), students, applicants for employment, vendors, contractors or general public

NOT investigators or fact-finders (do not determine appropriate corrective or remedial action that may be warranted)

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Locally Designated Official (LDO)Locally Designated Official (LDO)

Appointed by Chancellor Delegated overall coordination and

implementation of whistleblower procedure for UCR

Manages all implementing procedures and ensures UCR effectively responds to whistleblower reports

Ensures adequate communication and coordination of allegations of suspected improper governmental activities

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Section III ConditionsSection III Conditions

1. Possible violation of any state or federal law or regulation

2. Significant internal control or policy deficiency that puts campus at risk of potential losses

3. Likely to receive media or other public attention

4. Misuse of campus resources or creates an exposure to a significant liability

5. Significant possibility of being the result of a criminal act

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Section III Conditions (continued)Section III Conditions (continued)

6. Significant threat to the health or safety of employees, students or the public

7. Situation that is economically wasteful, or involves gross misconduct, incompetency, or inefficiency

8. Likely to involve multiple investigative units

9. Significant or sensitive for other reasons

Significant = $1,000

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Making a Whistleblower ReportMaking a Whistleblower Report

REPORTS: Encouraged to be written May be oral Should be factual and detailed May be direct or anonymous

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Making a Whistleblower Report (continued)Making a Whistleblower Report (continued)

Reports could be reported to: Campus investigative units UC Whistleblower Hotline (800-403-

4744) Locally Designated Official (LDO) Reporting employee’s immediate or

other supervisor Other appropriate campus

administrators State Auditor or State Auditor Hotline

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Receiving a Whistleblower ReportReceiving a Whistleblower Report

Be aware of and alert to any communications that may constitute reports of allegations of suspected improper governmental activity

Ask questions; obtain specific and relevant information from the WB during initial contact

Encourage the whistleblower to make a written report Immediately create written document of all oral reports Unless a section III condition, exercise appropriate

professional judgment in determining which matters can be reviewed under own authority

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Receiving a Whistleblower Report Receiving a Whistleblower Report (continued)(continued)

Consult with supervisors, LDO, campus investigative units and exercise of judgment should err on side of upward reporting

Turn matter over to LDO or investigative unit if investigative procedures go beyond normal responsibilities

If your whistleblower wants to be anonymous, advise him/her that confidentiality will be maintained to the extent possible, but within

limitations of law and policy Need to conduct a competent investigation

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Whistleblower suspects improper governmental activity

Is a Section IIIcondition met?

Directed to operating unit management

Operating unitmanagement

addresses matter

Involves Chancellor, LDO or LDO’s supervisor?

Report to UCOP Sr. VP-

Business & Finance

UCOP Sr. VP-Business & Finance

addresses matter

Whistleblower reports to Bureau of State Audits Hotline 800-952-5665

Whistleblower reports to report recipient (LDO/Supervisor/Other campus administrators/Campus investigative units)

Report recipient documents report in writing

Report recipient requests whistleblower to complete UCR Whistleblower Report Form

Whistleblower completes UCRWhistleblower Report Form?

Report recipient completes UCR Whistleblower Report Form

Report recipient completes UCR Investigations Report Form

Report recipient forwards UCR Whistleblower Report Form & UCR Investigations Report Form to LDO within one business day of receipt of report

LDO assigns a master case number

LDO and Investigations Team coordinate with the appropriate campus investigative unit

Alleged matter is investigated and whistleblower informed of outcome, as appropriate

Whistleblower reports to UC Hotline

800-403-4744

Bureau of State Audits addresses matter

InvolvesCampus investigative

unit head?

Report to LDOIs the alleged matter an

improper governmental activityand is there sufficient information?

Is aSection III

condition met?

Directed to operatingunit management

Involves Chancellor or LDO’s supervisor?Operating

unit management

addresses matter

Whistleblower informed of no investigation

LDOaddresses

matter

Is the alleged matter an improper governmental activity and

is there sufficient information?

NoNo

YesYes

NoNo

YesYes

YesYes

YesYes

NoNo

YesYes

YesYes

NoNo

YesYes

Involves campusinvestigative

unit head?Report to UCOP Sr. VP-Business

& Finance

UCOP Sr. VP-Business and Finance

addresses matter

YesYes

Whistleblower informed ofno investigation

NoNo

NoNo

NoNo

NoNo

YesYes

NoNo

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Policy for Protection of Whistleblowers from Policy for Protection of Whistleblowers from Retaliation and Guidelines for Reviewing Retaliation Retaliation and Guidelines for Reviewing Retaliation

Complaints (Whistleblower Protection Policy)Complaints (Whistleblower Protection Policy)

UC is committed to protecting employees from interference with or retaliation for having made a protected disclosure or for having refused an illegal order.

A University employee may not directly or indirectly use or attempt to use the official authority or influence of his or her position or office for the purpose of interfering with the right of a person to make a protected disclosure.

It is the intention of the University to take whatever action may be needed to prevent and correct behavior that violates this Policy.

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Contact Information

Audit & Advisory Services (A&AS) Address: 1201 University Avenue, suite 209 (University

Village) Telephone: 909-787-4667 Fax: 909-787-7209 A&AS homepage: http://audit.ucr.edu/ Suggested links:

About Internal Controls: http://audit.ucr.edu/internal_controls.htm

Internal Control Quiz/Checklist: http://audit.ucr.edu/departmental_quiz.htm UC Whistleblower Policies:

http://www.ucop.edu/ucophome/coordrev/policy/10-04-02.html