FLIRTING WITH FRAUD

 The Argus Observer reports that an audit has faulted a former Oregon district attorney (DA) for reimbursing witnesses at a higher rate and for a wider range of expenses than required by state law. In his defense, the DA said the state’s minimum witness reimbursement amounts are insufficient to help low-income witnesses attend trials and he could not allow such financial issues to hinder the judicial process. The audit also found the DA’s office purchased US $43,000 worth of copiers without a competitive bidding process and failed to provide adequate protection for evidence that it was holding.

Lessons Learned

Although this situation may not be considered a full-blown fraud, the DA’s actions easily could have led to additional questionable activities or major fraud. Furthermore, the DA’s actions were influenced by the typical fraud precursors: opportunity, pressure, and rationalization.

• Opportunity: The DA was able to unilaterally contract for services and change reimbursement rates for court witnesses. Essentially, the DA had the ability — and perhaps no other options — to right perceived wrongs.
• Pressure: The DA likely was likely subject to several job-related pressures (e.g., striving to do a good job under difficult conditions, the desire to be re-elected, and concern for the plight of crime victims).
• Rationalization: The DA felt that the current rules and reimbursement rates were inadequate and that financial issues should not prevent the legal system from compensating the victims of — and punishing those responsible for — criminal activities.

Internal auditors must understand that, when conditions are right, even well-meaning employees can engage in questionable — even fraudulent — activities. Internal auditing should comment on inappropriate conditions (e.g., mileage rates well below the norm) and ensure there are avenues for employees and management to raise concerns. If avenues to propose changes are nonexistent, employees may feel pressured to do whatever it takes to address intolerable situations. In cases where change is not practical or possible, employees should be informed of the reasons why. Two-way communication is a key to reducing both the rationalization and pressure on employees to pursue inappropriate actions. Furthermore, detective and preventive controls that will reduce the opportunity are important elements of any fraud prevention program.

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