The question is, does it ever stop.  Oh well probably not. In many of my classes we discuss the concept of helping general managers and employees the fundimentatls of internal controls. Which by the way includes safeguarding of assets.  I guess if we are to better safeguard assets by way of enhanced internal controls fraud may be minimized.  But as we all know it is virtually impossible to eliminate all risk, in this case fraud risk, to zero or none . 

Some risk and control managers and internal control experts are fearful that if they sprinkle the dust so to speak in other words spread the word about internal controls that they themselves will put their own jobs at risk, I am speaking of job security. Although there may be some fear of job secrity I encounge my students to sprinkle the dust.  Further indicating that in our lifetimes and probably generations to come risk and control experts will not be at a lack of work.

Here is a recent fraud incident.  But before we discuss this situation I believe we must go  back to some basics. In an earlier fraud news letter I catagorized fraud events into two catagories. They are dumbness, in other words the person who commited the fraud did not know better, and intent, in this case the person who committed the fraud knew better and tried to take advandage of another. I believe dumbness can be fixed with the sprinkling of the dust. With dumbness it is unfortunate that good people may fall into bad situations because they did not realize the consequences.  I have empthany for those who fall into this situation.  With intent there is no empthany. The persons who commited the fraud  realized the consequences but chose to continue with the fraud.

A recent case involved a proment politican who was found guilty of corruption charges, including accepting home improvements as a bribe and trying to extort money from a real estate developer. The charges included accepted $40,000 in home improvements from a city contractor and involvement with extortion charges of $100,000.  A more detail analysis of this case and all of the relative details may yeild wheather this was by intent or dumbness. In any event this politician was found guilty in court and is being sentenced.

But let us not stop here.  Another  well known and well respected public official was asked to resign from his job. The  allegations were that he accepted a favor from a contractor who was under contract to the city. The favor involved installing an airconditioner in the public officals home.  We are not talking about a major project here. It was the installation of an in the wall protable unit.

Here is how the story goes.  The contractor and the public official were having lunch when the contractor mentioned to the official that he had a crew in town and rememberd that the offical had mentioned that he was going to have an air conditioner installed.  The contractor said I have a crew in town I will just send them over to your house and have them put it in.  The public offical agreed.  If two friends were sitting down having lunch and one could provide such a service this would be considered nothing more than a ffriendly exchange of consideration. However, remember the situation here. This contractor was under contract to do work for the city. The authorization for the work was by this public official.  So this is no longer a freiendly exchange of a favor it is now wheather in reality or perception influence by the contractor to the public offical.  Now just as a note: the public offical’s yearly pay was approximalty $150,000 per year. It was estimated that the cost to pay someone to install the air conditioner would have been about $250.00.

So by accepting the work from the contractor, a $250.00 job, the public offical put himself, his job, and his family in a very bad situation. For $250.00 the media had a field day. The media with its usual and unusual spin portraied the public offical as one who accepted favors from city contractors. No charges were filed but the public offical was asked to resign.

So we are back to the basic question was this situation by intent or dumbness. I might add that I know this public offical.  I have my opinion.  But again we are not here to analyze or second guess legal decisions. We are discussing these suations to bring home a point.

The point goes back to the basics of internal controls as a fraud preventive tool. Considering these two situations the question is, would stronger internal controls have minimized or prevented thses situation. With dumbness an enhanced awarness of internal controls may have minimized the situation.  So what does this mean.  Simply the more the internal control dust is sprinkled the more likely the risk of fraud will decrease.  To put it another way the more individuals that become aware of what is right and wrong and what the consequences of their actions are the more the risk of fraud will decrease.

Now with that being said practicality must prevail. The practicality of the matter is that although some dumbness fraud risk may decrease intentional fraud risk will not decrease at near the same rate. But if dumbness fraud risk makes up approximatley 60% of fraud risk and that could be decreased by 50% just by sprinkling the dust there may be major steps forward to fraud prevention. Better yet the understanding of what is acceptable as non fraud and actual fraud will increase. Expontionally the dust will sprinkle itself. 

Who knows at some point, the risk and control experts may have to worry about job security?

This news letter cannot be complete without some comments and cautions about the gulf oil spill.

It seems in times of crisis or disaster when all people should be helping each other a few  to take advantage of others.  The oil spill in the gulf is no exception. Already there are numerious fraud schemes. From the simplest schemes to complex and fictious investment schemes.

The Federal Brureau of Investigagion (FBI) web site is always a good source of heads up fraud issues. I have found the web site to both imformative and a good tool to keep fraud from the doorstep. Below are some cautions, taken from the FBI website releative to the gulf oil spill. 

The web site and suffex is: http://www.fbi.gov/pressrel/pressrel10/oilspillfraud050410.htm

The FBI continues to remind the public to perform due diligence before giving contributions to anyone soliciting donations or individuals offering to provide environmental remediation services. Solicitations can originate from e-mails, websites, door-to-door collections, flyers, mailings, telephone calls, and other similar methods.

Before Making A Donation Of Any Kind Or Entering Into An Agreement To Obtain Services, Consumers Should Adhere To Certain Guidelines, Including:

·         Do not respond to any unsolicited (spam) incoming e-mails, including clicking links contained within those messages because they may contain computer viruses.

·         Be skeptical of individuals representing themselves as members of environmental organizations or officials asking for donations via e-mail or social networking sites.

·         Beware of organizations with copy-cat names similar to but not exactly the same as those of reputable charities.

·         Rather than follow a purported link to a website, verify the legitimacy of nonprofit organizations by utilizing various Internet-based resources that may assist in confirming the group’s existence and its nonprofit status.

·         Be cautious of e-mails that claim to show pictures of the disaster areas in attached files because the files may contain viruses. Only open attachments from known senders.

·         To ensure contributions are received and used for intended purposes, make contributions directly to known organizations rather than relying on others to make the donation on your behalf.

·         Do not be pressured into making contributions; reputable charities do not use such tactics.

·         Be aware of whom you are dealing with when providing your personal and financial information. Providing such information may compromise your identity and make you vulnerable to identity theft.

·         Avoid cash donations if possible. Pay by debit or credit card, or write a check directly to the charity. Do not make checks payable to individuals.

·         Legitimate charities do not normally solicit donations via money transfer services.

·         Most legitimate charities websites end in .org rather than .com.

·         Report individuals who are making false or exaggerated insurance claims.

·         Report individuals who make insurance claims but reside outside of the disaster zone.

·         Beware of contractors who require up-front payment for services because they may fail to perform the work or complete the job to the customer’s satisfaction.

·         Require contractors to provide a written contract detailing the services to be performed.

·         Use only licensed contractors.

·         Beware of job opportunities that require the applicant to pay an advanced fee before the job begins.

·         Beware of individuals posing as government officials who require a processing fee to provide government services.

Consumers can also report suspicious e-mail solicitations or fraudulent websites to the FBI's Internet Crime Complaint Center, www.ic3.gov

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