control, and governance
THE DISHONEST POLITICIAN
A former cabinet minister in the Nova Scotia provincial government pleaded guilty to submitting more than CA $25,000 in false expense claims over a two-year period,The Globe and Mail reports. Evidence presented at his sentencing hearing this month noted that he had submitted four claims for expenses that were unrelated to his official duties between 2006 and 2008, including CA $9,000 for a generator that was never purchased. The former minister is the second former legislator to plead guilty to charges resulting from a Royal Canadian Mounted Police investigation of inappropriate use of constituency allowances by Nova Scotia politicians. The provincial government has responded to the scandal by making changes to improve the transparency of the allowance system.
Expense account fraud is a significant problem in both the public and private sectors, contributing not only to lost revenue and profitability, but also to declining trust and confidence in society's institutions and organizations. This is particularly illustrated by this Canadian case in which a public official made false expense claims for goods and services he did not actually pay for and used public money to buy himself personal items.
It is commendable that in one case, the provincial legislature now requires public officials to publicly disclose their expense records; this is a measure that could be adopted by most public institutions to help deter fraudulent behavior. However, as most auditors will recognize, such a disclosure requirement deals with some, but far from all, of the methods and tactics fraudsters use to perpetrate expense account fraud.
In this case, an external auditor uncovered the fraudulent activity, underscoring the need for an active audit function to be in place to look for such illegal activity. Risk-based audit plans should include a periodic audit of expense claims, particularly but not exclusively focused on senior management or public officials. The planned audit scope need not include all transactions, but could use a sample approach — for example, all claims over CA $5,000 in value and within two or three locations or business units of a company or institution.
The results of audit work of this kind will frequently uncover inadvertent errors in expense claims on the part of claimants. Although it is not part of a fraud-related audit scope, it should nonetheless be addressed, for example, by conducting separate audit work on the adequacy of management controls over the expense claims process. But the detection of fraudulent activity should focus on larger and recurring expense items and on the legitimacy of the items or services claimed, as well as whether either was actually received or paid for. This can be a worthwhile, but somewhat complex or time-consuming, task involving checking facts and records with clients, contractors, suppliers, and others.
Senior officials or managers who engage in this kind of fraudulent behavior frequently collude with, enlist, or coerce others to cover up their schemes. Often, the technique can be as simple as getting a colleague, subordinate, friend, or business relation to pretend to pay for a service or item, and then making a fraudulent claim on his or her behalf.
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