Fraud Awareness and Prevention Week November 15-21, 2020

Fraud Awareness and Prevention Week November 15-21, 2020

Agenda Introduction Build awareness of fraud Consequences of fraud Fraud prevention and reporting Case study

Fraud Awareness and Prevention Week November 15-21 is a week dedicated to: Raise state employee awareness about fraud. Educate and train employees about fraud prevention, detection, and reporting techniques. Fight fraud to safeguard state assets and resources.

Fraud can happen anywhere

Why should I care? It’s your tax dollars! Impacts ability to provide programs and services. Impacts state agency operations. Tarnishes reputation of the fraudster, the agency, government in general. Creates new work to implement preventative or corrective internal controls.

What is fraud? An intentional or deliberate act. Something someone does knowing it’s not truthful. Can involve more than one person. Mistakes are not fraud.

Fraud Triangle Fraud Prevention Management should consider the potential for fraud when identifying, analyzing, and responding to risks. Management should consider the types of fraud that can occur within the entity to provide a basis for identifying fraud risks. These can be fraudulent financial reporting, misappropriation of assets, and even corruption. Pressure PRIME FRAUD CONDITIONS Rationalization Opportunity The most effective way an organization can decrease the chance of fraud is by limiting the opportunity someone has to commit fraud.

Examples of internal fraud in government Personal use of agency’s Procurement Card (P-Card). Reporting of false travel expenses. Not properly recording vacation or sick time used. Theft of cash or other state property. Kickbacks from vendors or grantees.

Examples of external fraud in government False claims by a vendor, grantee, provider, or service party. Misusing grant funds. Filing false financial or legal records with the state. Falsifying information to receive government benefits. Under-reporting income or over reporting expenses on a tax return.

Five Fraud Prevention Tactics 1. Be proactive 2. Follow established hiring procedures 3. Train employees in fraud prevention 4. Implement a fraud reporting mechanism 5. Increase the perception of detection

Who’s responsible for the prevention and detection of fraud? Management Internal Controls/Audit Employees Grantees/Vendors mn.gov/nofraud 11

How we detect fraud 43% Internal and External Tips 19% Internal and External Audits 12% Management Review 5% Random Discovery 4% Account Reconciliation 3% Document Examination 3% 2% 2% 1% 6% mn.gov/nofraud Surveillance/Monitoring Law Enforcement IT Controls Fraudster’s Confession Other 12

Laws about reporting fraud Reporting to State Auditor and Legislative Auditor required: Minnesota Statutes Section 609.456 Whistleblower protection: Minnesota Statutes Section 181.932

How do we report fraud? CUSTOMIZE THIS PAGE TO LIST YOUR REPORTING CHANNELS (sample below) Agency Human Resource Director 651-xxx-xxxx [email protected] Office of the Legislative Auditor 651-296-4708 [email protected]

Case Study

Jerry Hennessey

Videos Agweek TV Video explaining the Ashby elevator fraud AgweekTV: Elevator Embezzlement in Minnesota Minnesota Senate Hearing January 24, 2019 Video Committee Examines Embezzlement of Funds from Ashby Grain Elevator Cooper ative

What happened? Fraud started off very small and simple, Jerry wrote himself a few checks After getting away with it he got bolder, started writing checks directly from co-op account No oversight, 15 year scheme

How did it happen? Only one signature required on checks Altered check stubs to off-site book keeper No separation of duties Arranged Minnesota Department of Agriculture reviews but limited scope to on-site inventory only Never ordered a financial review or audit Failed to supply audit to the bank

1988 – 2018 Managed Ashby Farmers’ Elevator co-op 2003 – 2018 Jerry used co-op as personal piggy bank stole 5.3 Million September 2018 Fraud discovered, Jerry disappeared December 2018 Reappeared and was charged with mail fraud, tax evasion February 2019 pled guilty March 2019 Co-op awarded 5.3 million in restitution Now spending 8 years in federal prison in North Carolina Timeline

Jerry’s Aftermath Wife divorced him Required to liquidate all of his assets Dalton, Minnesota home is for sale Sentenced to 96 months in prison, near the top of the range allowed Requested to be placed in Duluth prison, was sent to North Carolina despite request

Widespread Aftermath Co-op made of 200 members lost more than 5 million, was forced to dissolve and liquidate all of its assets Initially leased by another co-op to keep running, then purchased Safari companies and hunting guides who received co-op checks for guide services have been sued Burnsville taxidermist, his wife, and their company were sued for 514,435.07

Fraud Questions How could this have been preventing from happening? What internal controls does your department have in place to prevent something like this from happening? What types of fraud did Jerry commit?

Thank you