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Fraud and Abuse Can Happen at Any Federal Agency

How Can You Prevent Fraud and Abuse from Happening at your Organization?

Fraud and Abuse Can Happen at Any Federal Agency

The Resource Management organization at Fort Sam Houston thought they had established sufficient internal controls to prevent fraud, yet it still happened to them … to the tune of more than $100M of taxpayers’ money stolen over a seven-year period by a civilian employee, as stated in a recent article in The New York Post.

The financial management employee diverted funds from a grant program designed to support a 4-H (Head, Heart, Hands and Health) program for military families, to a shell company she had established for her own use. It wasn’t until the IRS flagged her for potential tax fraud that the scheme was discovered.

The financial management employee diverted funds from a grant program designed to support a 4-H (Head, Heart, Hands and Health) program for military families, to a shell company she had established for her own use. It wasn’t until the IRS flagged her for potential tax fraud that the scheme was discovered.

While this case is an extreme example, it is certainly not the only time that this type of fraud and abuse of funds has occurred, and it can happen at any government organization. Case in point, COVID relief funds:

According to its latest report, the GAO “estimated that the total amount of fraud across all Unemployment Insurance (UI) programs (including the new emergency programs) during the COVID-19 pandemic was likely between $100 billion and $135 billion—or 11% to 15% of the total UI benefits paid out during the pandemic.” (More Fraud Has Been Found in Federal COVID Funding—How Much Was Lost Under Unemployment Insurance Programs, gao.gov, September 13, 2023).

These forms of abuse take funds away from critical programs for citizens and the safety of our country, jeopardizing an agency’s ability to carry out their mission, as well as undermining the reputation of the federal government as a good steward of taxpayers’ funds.

Here are three key risks identified in the Grant Fraud Awareness Handout from the Department of Justice, Office of the Inspector General, that clearly apply to the case of Fort Sam Houston:

  1. Less than Arms-Length Transactions: purchasing goods or services or hiring an individual from a related party such as a family member or a business associated with an employee of a grantee.
  2. People that embezzle funds can be extremely creative and appear very trustworthy – precisely why they can do so much damage to an organization and remain undetected for extended periods of time.
  3. Poor or no internal controls equal inevitable theft. A lack of appropriate separation of duties is one of the most common weaknesses.

Establishing stronger internal controls can help prevent fraud, waste, and abuse. Here are steps every agency should take now to prevent improper use of funds:

  1. Conduct internal control assessments in financial management, as well as compliance with applicable laws and regulations, to identify and classify any material weaknesses, reportable conditions / significant deficiencies, or control deficiencies.
  2. Establish a well-designed and tested system of internal controls. Leadership should determine the appropriate controls and ensure they are put in place and tested for effectiveness.
  3. Develop corrective action plans to reduce the risk to programs, especially those such as grant programs that are susceptible to fraud, waste, and abuse.
  4. Ensure all financial or other certifications and progress reports are adequately supported with appropriate documentation and evidence.

Of course, these recommendations are easier said than done. Financial organizations are struggling due to limited resources, staff lacking the proper training, leaders retiring at record numbers, and other issues, creating a reactionary mode versus proactive.

Partnering with an experienced financial management firm that understands federal regulations, processes and systems can help federal organizations to establish effective internal controls that can prevent fraud, waste, and abuse, as well as optimize funding by identifying funds that can be shifted from underutilized programs to more mission critical programs.

Need to conduct an internal control assessment to improve internal controls at your agency?

Connect with Empirical to discuss your concerns and goals and learn how our experts have helped many agencies establish strong internal controls: