Learning Objectives

What is fraud?
Why fraud happens?
Ways to reduce fraud risk
How to report possible fraud

Faculty Staff Students Everyone

Who is Responsible for Fraud Prevention at HCC?

You Are HCC’s MOST IMPORTANT
Control!

Fraud defined…
"Any intentional act or omission designed to deceive others, resulting in the victim suffering a loss and/or the perpetrator achieving a gain." *

*Source: The Institute of Internal Auditors (IIA), The American Institute of Certified Public Accountants (AICPA), & Association of Certified Fraud Examiners (ACFE),
Managing the Business Risk of Fraud: A Practical Guide (pp. 5).

What does a “TYPICAL” Fraudster look like?

Female	Male

28%

72%

Level of Authority

Owner/Executive	20%

	
> 1 year	9%	
1-5 years:	46%	
6-10 years:	22%	
> 10 years:	23%	

Manager	35%
Employees	41%
Others	3%

	
High school graduate or less:	22%	
Some University:	14%	
University Degree:	49%	
Postgraduate Degree:	15%	

 	
Perpetrator’s Age

< 30:
31 – 40:
41 – 50:
> 50:

14%
35%
32%
17%

Fraud News Headlines

Former Washington University administrator pleads guilty to embezzlement…

Most Common Categories of Fraud
(Occupational-committed by employees against employers)

Involves the actual theft of an
entity's assets
Most common
86% of cases
$100,000 median loss

Asset Misappropriation

Dishonest or fraudulent conduct by those in power, typically involving bribery
Next most common
43% of cases
$200,000 median loss

Corruption

The deliberate misrepresentation of
the financial condition of an enterprise accomplished through the intentional misstatement or omission of amounts or disclosures in the financial statements
Least common
Most costly
$954,000 median loss

Financial Statement Fraud

Association of Certified Fraud Examiners (ACFE) 2020 Report to the Nations

How Often Do Fraudsters Commit More than One Type of Crime?

Common Types of Fraud in Higher Education

Theft/misappropriation of college assets
Fake vendor payments
Fraudulent employee expense reports
P-card abuse
Financial aid kickbacks
Theft of donations

<<Fraud can cost our students, donors, and key stakeholders>>

https://www.claconnect.com/resources/articles/2018/tips-for-preventing-and-detecting-internal-fraud-at-colleges-and-universiti

How Fraud Can Affect HCC…

Financial loss is the generally the main effect of FRAUD in Higher Education, but…

Reputational Damage is another significant risk of Fraud in Higher Education. The Institution receiving…
negative publicity (i.e. news broadcasts, newspapers, rating agencies, etc.)
Potential drop in future enrollment
Potential drop in future advancement/development contributions

Why good people do bad things?
"Integrity is doing the right thing, even when no one is watching." -C. S. Lewis

In large organizations, employees can begin to feel more like
numbers or cogs in a machine than individuals.

The use of nicknames and euphemisms for questionable practices can free them of their moral connotations, making them seem more acceptable. (“greasing the wheel”, “financial engineering”)

Sometimes people, having been moral and forthright in their dealings for a long time, feel as if they have banked up some kind of "ethical credit”.

Small thefts are ignored. Then slightly larger ones like over claiming expenses or accepting unauthorized business gifts.
(stationery, sugar packets, paper cups, toilet paper)

https://www.businessinsider.com/reasons-why-good-people-do-bad-things-2016-12#the-compensation-effect-5

Why Does Fraud Happen?

Fraud Case Example Payroll Scam

Fraud Triangle in the Context of COVID-19

BEHAVIORAL RED FLAGS OF FRAUD

Recognizing the behavioral clues displayed by fraudsters can help organizations more effectively detect fraud and minimize their losses.

7 KEY WARNING SIGNS
Living beyond means
Financial difficulties
Unusually close association with vendor/customer
Control issues, unwillingness to share duties
Irritability, suspiciousness, or defensiveness
“Wheeler-dealer” attitude
Divorce/family problems

*Association of Certified Fraud Examiners (ACFE) 2020 Report to the Nations

	Classifying Red Flag Behaviors	

In 52% of cases, the fraudster exhibited red flags connected to their work duties.

85% of all Fraudsters displayed at least one red flag while committing their crime.

A fraudster living beyond their means is the most common. It has been the #1 RED FLAG in studies since 2008.

*Association of Certified Fraud Examiners (ACFE) 2020 Report to the Nations

Primary internal control weaknesses that contribute to occupational fraud.

Lack of Internal Controls
32%

Overriding of
Existing Controls
18%

Lack of Management Review
18%

Poor Tone at the Top
10%

Lack of Competent Personnel in Oversight Roles
6%

Lack of Employee Fraud Education
3%

*Association of Certified Fraud Examiners (ACFE) 2020 Report to the Nations

Easy Ways to Reduce Fraud Risk

Management Controls
Fraud Risk Assessments

Key Management Controls

Segregation of duties

Change management

Physical and IT access

Update policies and procedures

Management oversight – required reviews, approvals, and reconciliations

Which anti-fraud controls are in place and operating effectively at HCC?

Proper Segregation of Duties

Use of Authorizations

Physical safeguards (access cards, locks)

All of the above

Fraud Risk Assessments
Process to identify where fraud may occur and who may be committing it

Ask how would I commit the fraud?

Document the controls in place to prevent this fraud from happening.

Determine whether the control environment is adequate to prevent the fraud.

Add practical procedures to bring the control environment to an acceptable level if needed.

How could someone exploit weaknesses in our controls and daily behaviors?

How could someone override or circumvent our controls?

How could someone conceal their wrongful actions?

Begin with the PRESUMPTION
that a fraud event has already occurred.

Assume you are committing the fraud.

Active
Fraud Risk Brainstorming

Fraud News Headlines

Tip Internal audit Management review
Other By accident External audit
Account reconciliation Surveillance/monitoring Document examination
IT controls Notified by law enforcement
Confession

43%

15%
12%

6%
5%
4%
4%
3%
3%
2%
2%
1%

0%	5%	10%  15%  20%  25%  30%  35%  40%  45%  50%

Employee Customer Anonymous
Vendor Other Shareholder/owner
Competitor

50%

0%	10%	20%	30%	40%	50%	60%

Sources of Fraud Detection…
How are Reports Made?

Who Reports?

					

22%

15%

11%

6%

2%

2%			

*Association of Certified Fraud Examiners (ACFE) 2020 Report to the Nations

HCC is pleased to provide a third-party Ethics and Compliance Hotline for employees, students, and members of the public to encourage the reporting of any fraud, waste, and abuse and violations of College District policy and law.

http://www.hccs.ethicspoint.com/
1.855.811.6284

Prevention and Deterrence

Visible and vocal leadership

Active ongoing fraud risk assessments

Policies on Fraud Responsibilities

HCC Policies on Fraud Responsibilities
Policies

BBFB (LEGAL)	CAK (LEGAL)
CDC (LOCAL)	CDE (LOCAL)
DGBA (LOCAL)	DH (LOCAL)
FEA (LOCAL)	FLB (LOCAL) FLD (LOCAL)

Employee Standards of Conduct annual training

FRAUD AWARENESS KNOWLEDGE

I have a clear understanding of occupational fraud

I have the basic skills to recognize possible behavioral red flags of fraud

I feel comfortable performing a fraud risk assessment

I feel confident I know what to do if I suspect possible fraud

Terry Corrigan, Internal Audit Director
713-718-7278
hcc.internalaudit@hccs.edu
https://www.hccs.edu/departments/internal-auditing/

Questions/Comments (Please use Q&A	)