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GRANT FRAUD GRANT FRAUD AWARENESSAWARENESS
SA Laura Rousseau202-353-2975
U.S. Department of JusticeOffice of Inspector General
Fraud Detection Office
What is the DOJ OIG?What is the DOJ OIG?
Responsibility & Authority
Focus
Components
American Recovery and Reinvestment Act of 2009
$787 B. includes approximately $400 B. for grants / cooperative agreements, $60 B. for procurements, $327 B. for tax cuts and other federal spending programs
Emphasis: Job Creation; Transparency; Accountability; and Oversight
Multiple Oversight Mechanisms: 68 Federal OIG’s, Recovery Accountability and Transparency Board / Recovery.gov; OMB; GAO; 56 State Administering Agencies
Feb 18, 2009 OMB Guidance – Disclosure Requirement
Agencies must “[i]nclude the requirement that each grantee or
sub-grantee awarded funds made available under the Recovery
Act shall promptly refer to an appropriate inspector general any
credible evidence that a principal, employee, agent, contractor,
sub-grantee, subcontractor, or other person has submitted a false
claim under the False Claims Act or has committed a criminal or
civil violation of laws pertinent to fraud, conflict of interest, bribery,
gratuity, or similar misconduct involving those funds.”
What is Grant Fraud?
Fraud AssumptionsFraud Assumptions
It Happens
Prevent / or Detect it Early
Fraud’s ConsequencesFraud’s Consequences
Organizational Reputation /
Survival
Administrative
Civil
Criminal
The Keys to Preventing, Detecting and Stopping Fraud:
PROFESSIONAL SKEPTICISM
&
COMMUNICATION
Grant ProcessGrant Process
ApplicationBudgetAssurancesGrant Conditions Eligibility
PerformanceDraw DownsMonitoringGov’t ManagementFSR Certifications
INTEGRITY BASED SYSTEMINTEGRITY BASED SYSTEMOMB CircularsOMB Circulars
Process SafeguardsProcess Safeguards
Grant Management / Desk Audits
Grantor Monitoring
OIG Audits
A-133 / Single Audit Act
Mistakes
Gross Negligence
CriminalFraud
Common Grant Fraud Common Grant Fraud SchemesSchemes
1. Conflicts of Interest
2. “Lying” About the Use of Funds
3. Theft
Conflicts of InterestConflicts of Interest
Typical Issues:
Related Party Transactions (Grantee or Board
Member)
Grant / Sub Grant Award Decisions
Consultants: Who, What, How, How Much?
Grant Writer Fees / Contingent Fees
Know your Grantee Conflict of Interest Statement
Chapter 3, OJP Financial GuideChapter 3, OJP Financial Guide
“No official or employee of a State or unit of local government or a nongovernmental recipient/subrecipient shall participate personally through decisions, approval, disapproval, recommendation, the rendering of advice, investigation, or otherwise in any proceeding, application, request for a ruling or other determination, contract, award, cooperative agreement, claim, controversy, or other particular matter in which award funds (including program income or other funds generated by federally funded activities) are used, where to his/her knowledge, he/she or his/her immediate family, partners, organization other than a public agency in which he/she is serving as an officer, director, trustee, partner, or employee, or any person or organization with whom he/she is negotiating or has any arrangement concerning prospective employment, has a financial interest, or has less than an arms-length transaction.”
Chapter 3, OJP Financial GuideChapter 3, OJP Financial Guide
“In the use of agency project funds, officials or employees of State or local units of government and nongovernmental recipient/subrecipients shall avoid any action, which might result in, or create the appearance of:
Using his or her official position for private gain; Giving preferential treatment to any person; Losing complete independence or impartiality; Making an official decision outside official channels; or Affecting adversely the confidence of the public in the integrity
of the government or the program.”
Preventing Conflicts of InterestPreventing Conflicts of Interest
Educate every employee and board member on the defined COI prohibitions.
Ensure procurement procedures are well-designed and followed.
Consultants: Who, What, How, How Much? Document the facts and have another party review
them. If in doubt about a potential COI situation, seek
written guidance from the grantor. A fully disclosed and approved potential COI probably
ceases to be a COI.
““Lying”Lying”
Typical Issues:
Labor Hours / Wages; Types of Equipment / Supplies / Events;
Indirect Cost Rates; “Level of Effort”
Program Income / Matching Funds
Other Grants Fund the Same Program
Political changes to use of funds
Financial Certifications & Draw Downs must be supported with
evidence such as receipts, expense reports or cancelled checks.
Progress reports must be factually accurate.
Signed grant agreement is a contract: changes to budgets and
program must be approved.
Preventing “Lying” About the Preventing “Lying” About the Use of FundsUse of Funds
Ensure interested parties read the grant agreement; maintain written correspondence with grantor about any program or budget changes.
Keep well-organized and complete accounting books and records (consider using financial software or spreadsheets).
Practice logical and supportable expense recording procedures– time sheets, draw down calculations, etc...
The person who signs grant award, FSR’s and other documents is personally liable– support all assertions.
Pay close attention to: indirect cost rates; program income; multiple awards; expiring money.
Fully disclose problems with grantor and seek assistance.
TheftTheft
Single most common risk for every entity– It can and
does happen.
Poor or no internal controls = Virtually inevitable theft.
“Trust” is not part of the equation.
Checks routinely written to employees as
“reimbursement” of expenses should be carefully
analyzed.
Gift Cards / ATM / Debit / Credit Cards are easily abused.
Preventing TheftPreventing Theft
Ensure internal controls are well-designed and properly implemented
and tested.
Separation of Duties: receipt, disbursement, recording, custody, &
audit / review functions should be done independently.
Consider using a fiscal agent or bookkeeper.
Carefully control debit / credit / gift cards and checks.
Pay close attention to: “payroll advances”; employee reimbursement
checks; IRS tax withholding payments & other payroll issues; past-due
vendor invoices.
To increase deterrence and detection, educate every employee, board
member, and coalition partner about this risk.
