Welcome to Fraud Awareness and Prevention Week! - Minnesota

Welcome to Fraud Awareness and Prevention Week!

Monday, November 15 ? Friday, November 19, 2021

Monday's Fraud Awareness and Prevention Week Tip:

Fraud Impacts Us All!

Governor Walz issued a proclamation declaring November 14? 20, 2021 Fraud Awareness and Prevention Week. The goal of preventing fraud, waste, and abuse of state assets and resources is vital for all state agencies and the responsibility of all state agency employees. About 16% of all occupational fraud worldwide occurs in a government setting, accounting for $100,000 in median loss per case according to the Association of Certified Fraud Examiners (ACFE) Report to the Nations, 2020 Global Study on Occupational Fraud and Abuse.

Opportunities for fraud to occur in state government are heightened due to internal and external changes agencies continue to face, including pandemic, social, and economic impacts. At your agency, you've likely had to adapt to additional funds and stimulus programs, compliance and regulatory requirements, reporting mandates, and new responsibilities for agency personnel who are teleworking. Our work environment has evolved and so have fraud schemes. These shifts reinforce the need to prevent opportunities for fraud, waste, and abuse to the best of our abilities.

Impacts of Fraud

If fraud occurs in our state government, taxpayers, state agency employees, and state agencies could be impacted in many ways. The repercussions include:

? Loss of public funds and resources ? Redeploying resources for fraud investigations ? Increased cost of government services, fees and taxes, and sanctions ? Less money for government operations and technology ? Significant expenses for prosecution and incarceration of convicted fraudsters ? Negative news and reputational harm for the agency and fraudster ? Reduced confidence in public officials and/or public agencies ? Impact on effort to meet agency goals ? Impact to staff development, retention, and recruiting ? Lowered employee morale

Take time to understand the make up of fraud so you know how to detect, report, and prevent it.

Fraud Triangle

The median duration of a fraud scheme is 14 months and there is an attempt to conceal it in 88% of cases, according to the ACFE Report to the Nations, 2020 Global Study on Occupational Fraud and Abuse. Fraud schemes are extremely difficult to detect, especially in a telework environment. Understanding what to look for and what to

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do when uncovering fraud can save time and money now and in the future. Three things are needed for fraud to occur, depicted in the fraud triangle:

Pressure is the motivation or incentive driving the need to commit fraud. Pressures can include, but are not limited to, financial stresses, addictions, unattainable work goals, or sudden health issues. Rationalization is the justification for the fraudulent actions. Some examples of rationalization include feeling underpaid, planning to payback money taken, telling yourself "everybody is doing it", or "nobody will miss it." Opportunity presents itself through weak or non-existent internal controls within processes. This is the primary contributor to all types of fraud and is the only aspect of the fraud triangle that can be controlled. A person committing fraud exploits the gaps or weaknesses in controls. Agency staff must evaluate and implement effective internal controls, because anti-fraud controls lower fraud losses and help with quicker detection. In a telework setting, it becomes more difficult to interact with fellow colleagues. This makes spotting behavioral `red flags' of fraud more challenging. If these types of behaviors are exhibited, it is not a guarantee that fraud is occuring. However, it is important to understand these types of behaviors, as at least one is noted in 85% of all cases of fraud. Managers and employees must make a conscious effort to communicate regularly and discuss fraud prevention and detection. For more information on behavioral `red flags' of fraud, see pages 49-53 of the ACFE Report to the Nations, 2020 Global Study on Occupational Fraud and Abuse. Each day this week, we will share information all state agency employees need to know, focusing on:

? Fraud risks and internal controls to minimize the opportunity for fraud ? Ways to detect fraud and our resonsibility to report fraud, waste, and abuse ? The importance of promoting an anti-fraud culture in our state Please check out an ACFE Video entitled "Why Do People Commit Fraud" to learn more! (Note: link will download an MP4 format to your device, from the ACFE website.) Help prevent, detect, and report instances of fraud!

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Tuesday's Fraud Awareness and Prevention Week Tip:

Target Fraud Risks!

Yesterday, our topics were the impacts of fraud on our government and the elements needed for fraud to occur. Today we will discuss how changes to many areas in our agencies could create more external and internal risks and opportunties for a person to commit fraud.

Fraud can happen anywhere and at any time. Acknowledging this fact is an important step in fraud prevention. A person who commits fraud acts intentionally, misrepresenting the truth and purposely concealing facts. The goal is to benefit themselves or those around them by causing harm to others. These acts are different from honest mistakes or errors. According to the Association of Certified Fraud Examiners (ACFE) The Next Normal: Preparing for a Post-Pandemic Fraud Landscape, 51% of organizations have uncovered more fraud than usual since the onset of the pandemic, and 71% expect the level of fraud to increase over the next 12 months.

Fraud Risks

Employee embezzlement, bribery and corruption, and financial statement fraud continue to be the three most common occupational fraud schemes, mostly due to improper oversight and one person owning too much of an entire process. The state internal control framework implemented in executive branch agencies is the Standards for Internal Control in the Federal Government, known as the "Green Book". Performing a comprehensive, collaborative risk assessment is critical to an agency's internal control system. The goal is to proactively identify overall agency, program, and process risks (including assessing for fraud risks) and responding appropriately to those risks. This proactive approach stops fraud before it happens. Some risks that open opportunities for fraud to occur are:

? Lack of Documentation. The type and ways we conduct our work have changed. Creating or updating policies and procedures and documenting agency decision-making must be a priority. Accurate policies and procedures ensure agency objectives are being met, control responsibilities are accounted for, and employees can accurately complete everyday tasks.

? Changes to the control environment. New funding streams, changes to personnel, technological advances, new legislation, and new programs are a few examples of modifications to the control environment. Place importance on core agency values of ethical conduct, integrity, and accountability. Adapt to changes through succession and contingency planning.

? System Access. Maintain appropriate levels of employee access to agency systems and limit viewing of sensitive data. Additional work responsiblities may require more access to information. When onboarding new employees, evaluate access to information and revisit access periodically. During offboarding, remove access immediately.

? Cyberfraud. According to ACFE The Next Normal: Preparing for a Post-Pandemic Fraud Landscape, cyberfraud and social engineering are the two categories most expected to increase as 80% of survey respondants anticpate growth. Examples include hacking, ransomware, phishing, and baiting. For more on MNIT's security tips, resources, and information, visit their website.

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? Physical security. Teleworking increases risk of theft or damage to computers, monitors, chairs, etc. In telework locations it is possible for other individuals to access sensitive data if proper safeguards are not used. Physically secure documents and lock screens when away from computers.

Other types of fraud risk expected to rise in frequency include identity theft, unemployment, vendor or grantee, and payment fraud. These risks can present opportunities in many state processes which already have policies and procedures with existing controls. Expanded risks in these areas make it necessary to evaluate the processes, identify and document all risks and current controls, and manage those risks with appropriate controls if needed.

It is critical to understand what controls reduce the opportunities for fraud, waste, and abuse. Tomorrow's information will be on specific internal controls and fraud reduction strategies.

Help prevent, detect, and report instances of fraud!

Wednesday's Fraud Awareness and Prevention Week Tip:

Leverage Internal Controls!

Yesterday, we covered the risks and the expected rise in fraud opportunities. Today we will cover internal controls and strategies to minimize fraud, waste, and abuse.

Minimize Fraud with Effective Internal Controls

Decreasing or stopping fraud before it starts is always easier said than done. Anti-fraud programs usually involve many agency resources, and the fraud landscape is always changing. There are many challenges to anti-fraud programs including changes to investigative processes, restrictions on accessing physical work locations, effort for pandemic-related response activities, siloed operations, and other uncertainties. These challenges reinforce the strategy of proactive risk assessment and implementing effective internal controls before having to react to potential fraud. The Association of Certified Fraud Examiners (ACFE) Report to the Nations, 2020 Global Study on Occupational Fraud and Abuse notes that a lack of internal controls contributed to nearly 33% of occupational frauds.

Internal controls are the plans, methods, policies, and procedures implemented to provide reasonable assurance that we achieve our reporting, compliance, and operational goals. This includes safeguarding our state assets.

Internal Controls and Fraud Reducing Strategies

? Institute separation of duties for transaction recording, approvals, reconciliation, and ownership of a process.

? Increase the perception of detection through regular discussion and relevant training. Enhance fraud awareness by periodically communicating fraud policies, reporting mechanisms, and consequences of fraudulent behavior (termination and criminal prosecution).

? Follow statewide and agencywide Code of Conduct/Code of Ethics policies. State agency employees should complete the training and review the Statewide Code of Conduct Policy.

? Implement and follow specific fraud reporting mechanisms. Provide avenues for state agency employees, contractors, and stakeholders to report suspicious activities. Consider improving or implementing technology to provide anonymous reporting channels.

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? Evaluate SWIFT and SEMA4 security roles to verify appropriate state agency employee access when performing functions in those systems. Update roles during the Annual Security Review and Verification.

? Follow time reporting policies and procedures. Use calendars, tasks, and Teams to assist in tracking time and tasks. Document work schedules and regularly communicate with colleagues to notify of scheduled time off and work schedules.

? Consider periodic rotation of tasks and job responsibilities to reduce chances for fraud, cross-train staff, and promote knowledge retention in specific areas.

? Conduct proper oversight through review, reconciliation, and approvals of transactions. ? Prevent Cybersecurity and Social Engineering risks by following tips, guidance, and policies through

resources provided by Minnesota IT Services (MNIT). ? Document delegations of authorities and responsibilities. ? Follow established hiring policies and procedures requiring reference and background checks, including

educational and employment history (as permitted by law). ? Improve tracking and monitoring of corrective action. Follow through on improving or implementing

internal controls and regularly test processes to ensure they are working as designed. ? Document processes and decision-making including who, what, when, and why.

The Association of Certified Fraud Examiners (ACFE) website has free resources for fraud prevention. Use the Fraud Prevention Checkup to see if your agency, division, or unit is vulnerable to fraud and if you have controls in place to prevent it. Use the Fraud Prevention Checklist to help test the effectiveness of the controls you have in place to prevent fraud.

If fraud, waste, or abuse occurs, how is it reported? Tomorrow's tip will focus on existing fraud reporting channels.

Help prevent, detect, and report instances of fraud!

Thursday's Fraud Awareness and Prevention Week Tip:

Responsibility to Report!

Yesterday, our prevention topic involved internal controls and strategies to reduce opportunities for fraud. Today we focus on reporting misuse of state resources.

Reporting Channels and Protections

Our statewide goals are to prevent waste and abuse, and to protect state assets. Despite prevention efforts such as increased awareness and education, fraud can still happen. State agency employees and stakeholders must know what to look for in fraud detection. Agencies must have proper channels to report such activity. The Statewide Code of Conduct Policy requires state agency employees to report violations of the policy, significant internal control deficiencies, evidence of theft, embezzlement, or unlawful use of public funds or property. Agencies are responsible for establishing and maintaining an agency-specific conduct and ethics program, training annually, and establishing fraud reporting mechanisms.

According to the Association of Certified Fraud Examiners (ACFE) Report to the Nations, 2020 Global Study on Occupational Fraud and Abuse, tips are the most common way fraud is detected; half of those fraud tips come from

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