Effective grant management includes preventing, monitoring and detecting circumstances that set the stage for grant fraud to take place.
3 Key Elements for Fraud
In order for fraud to occur three key elements are always in place:
#1: Opportunity (Can I get away with it?)
#2: Motivation (Do I want it?)
#3: Rationalization (Do I “deserve” it?)
Of these three, opportunity is the one factor that organizations can directly influence and thereby reduce risk of fraud occurring.
2 Sources of Fraud Opportunities
There are two major sources of opportunity for fraud within an organization:
#1) Sub-par internal controls
#2) Vulnerable projects, transactions, accounts, and circumstances within the organization
Opportunity appears when an existing situation or circumstance within the organizational environment “aides and abets” the commission of fraud.
2 Ways to Protect Your Organization
Fortunately, there are also two main ways to protect your organization:
#1) Strong internal controls
#2) Active monitoring
Start with Strong Internal Controls
Strong internal controls are the most effective means to deter fraud. Internal controls most commonly include:
• Segregation of duties
• Approval policies and procedures
• Restrictions/checks on authorizations
• Compliance and accounting audits
In order to assess internal controls within an organization it is useful to know common indicators that an organization’s policies and procedures place them at risk for fraud.
These indicators do not necessarily require formal investigation; however, they can demonstrate the need to reassess effectiveness of internal controls.
Don’t Forget to Monitor
A person’s knowledge of the organization’s existing internal controls, policies, and procedures as well as their level of authority within the organization require internal controls to be consistently monitored in order to detect fraud by those with more knowledge and/or authority within the organization.
Also, some specific types of projects, transactions, accounts, and circumstances have historically been associated with the occurrence of fraud. Instances and circumstances that allow access to cash, credit card purchases, and vendor set up/payment always warrant careful monitoring of internal controls and/or corrections in order to reduce the risk of fraud occurring.
Don’t be in Denial: Fraud Happens!
Fraud committed by those abusing their position most usually occurs due to:
• Inadequate or nonexistent internal controls
• Inadequate oversight
• Insufficient or missing procedures
Organizations failing to establish adequate written procedures prohibiting as well as detecting fraudulent activity run the risk of fraud taking place.
Better safe than sorry when it comes to grant fraud!
Lucy Morgan CPA, MBA
CEO, Compliance Warrior