Management establishes the tone at the top and the standards followed by an entire organization. A good place to begin establishing a constructive tone at the top is by adopting a written code of ethics. For the code to be of any value, it must first be followed by management and then communicated throughout the organization. The code of conduct should be consistently enforced throughout all levels of the organization and transgressors appropriately punished. Newly hired employees should be made aware of the code of conduct and the consequences of failing to comply.

Management should also periodically review policies and procedures that involve internal controls and fraud prevention and make sure those policies and procedures are up-to-date and enforced. Management should consider setting up a process for employees to report potentially fraudulent activities like a hotline, or confidential contact in the legal or human resources department.

Management should be aware of, and come to understand the purpose and operation of, their organization’s controls and should periodically review them for effectiveness.                            

Risks Risks Risks
Reporting Issues

Inaccurate reporting.

Federal reports filed late or not at all.

No management review of reports.

Related audit findings.

No monitoring of federal requirements for changes.

State of Maine Self Assessment: Reporting
Sub-Recipients Ineffective in Program Implementation

New subrecipients.

Repeat audit findings.

Conduct training for new sub-recipients

AGA's Subrecipient Monitoring and Self-Assessment Tool (pending)

AGA Risk Assessment Monitoring Tool

AGA's Blended and Braided Funding: A Guide for Policymakers and Practitioners

Systematic Mischarging

Labor mischarging- extension.

Material mischarging- extension.

Restricted/delayed access to records.

Generally, 3 times 5 equals 15, but sometimes it can be made to equal 16 or 17. Automated billing programs can be altered to make sure invoices are for amounts greater than agreed. The invoices, with refooting, look fine. The way to control this type of fraud is to check, at least on a sample basis, the calculations shown on invoices.
The vendor, contractor, or supplier is getting more than provided for in the contract.

Frequent change orders.

Unauthorized changes.

Rates or prices in excess of contract.

Rates or prices in excess of market norms.

Missing or altered inspection reports.

Undeservedly favorable evaluations of contractors.

Missing/altered serial numbers/model numbers/labels.

Requests for payments inconsistent with prior cost data.

Frequent invoice/voucher errors.

Poor cost documentation.

Claims for unallowable costs.

Little physical progress on contracts when significant costs have been billed.

Material mischarging—price.

Material mischarging—quantity.

Material mischarging—quality.

Labor mischarging—time.

Labor mischarging—rate.

Systemic mischarging—extension.

Double counting costs as both direct and indirect.

Professional fees for “services rendered” with few details.

Altered/missing/late test reports.

Unexpected/premature part failures.

Restricted access to storage/production facilities.

Restricted/delayed access to records.

Inadequate segregation of duties between contracting, purchasing, receiving, storing, etc.

Socialization between employee and contractor/vendor.

Vendor/contractor and employee address/phone match.

Multiple purchases just under bid limits.

Failure to take advantage of existing contracts/off-contract purchases.

A physical inspection should be made of all large or expensive goods that are provided to look for red flags.

All contracts should allow for audit of the provider and for unannounced audits should be conducted.

Theft/Lost Inventory Missing items due to physical theft.

Security cameras with recording devices.

Performing regular and random inventory counts to uncover issues of theft or waste quickly.

Security guards.

Separation of duties.

Internal reports.

Good space utilization so that products are not to be moved frequently. This also reduces the labor cost associated with inventory.

Helpful Links: 

Vendor Has Committed Fraud in the Past or Performed Less Than Satisfactorily

Vendor is not authorized to do business in your jurisdiction, or is behind on taxes.

Check new vendors for Certificates of Good Standing or Status. These documnets are usually located at a state's secretary of state's office, or department/division of taxation, assessments, corporations.

Establish process to check all bidders/vendors/contractors for state/local debarment or exclusion from federal awards, suspended licenses, complaints from prior customers, etc.

Federal Excluded Parties List System (replaced by System for Award Management (SAM))

List of Individuals/Entities Excluded from Federal Health Care Programs

State of Maine Self Assessment - Procurement/Vendor Suspension-Debarment

Vendor is not Qualified to Perform Work or Provide Product or Service

Vendor suddenly bids on work far beyond previous scope or cost.

Perform background/reference/credit checks on vendors to determine financial capacity to perform work.

Perform oversight of prime/sub/vendor contract requirements to ensure agency gets what it pays for.

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