When it comes to reducing the risk of fraud and misuse of taxpayer funds, grant managers should watch out for the great “blame game” hoax that often accompanies the misappropriation of funds.
Committing fraud is a deliberate action; efforts to conceal that fraud are also just as deliberate.
Grant Fraud Recipe Includes 3 Ingredients
The recipe includes 3 ingredients:
As we’ve seen, designing systems to deter fraud focus primarily on opportunity. Certainly when you reduce the opportunity you reduce risk for grant fraud and mis-management taking place.
However, we need to also be on-guard for warning signs of the other two elements of rationalization and motivation.
Beware of the “Blame Game”
The old adage says “the best defense is a good offense.” In other words, an offensive attack may be launched against you, if you start to question circumstances that seem “fishy.”
Both motivation and rationalization are involved in triggering the “attack dog” response. The goal for the fraudster is to get you to back down and quit poking around.
You can even be drawn into the “blame game” for not “trusting” or not being a “team player.”
It’s hard to challenge someone about how grant funds are being spent.
And the sad truth is that being a whistle-blower doesn’t always turn out that great for the person blowing the whistle. (See The Shocking Truth About What Happens to Whistle-blowers)
Keep Your “Smoke” Detector Fired Up for Motivation and Rationalization
Where there’s smoke there can be fire. So keep your eyes open to situations where people may be motivated to take advantage and rationalize their behavior.
Studies have shown that the most common motivations for grant fraud are:
#1 Employee dissatisfaction with job or life
#2 Employee financial stresses
Rationalization = Making Excuses for Bad Behavior
Rationalization (also called making excuses) acts as a “cheerleader” for doing things that are wrong by encouraging unacceptable behavior.
Here are some examples of rationalization:
“Nobody don’t really cares if we take these supplies.”
“It’s too big of a hassle to turn in this refund.”
“I’m just borrowing this equipment to fix up my house and will return it before anyone needs it.”
“I deserve a government “bailout” too!”
What Can Be Done?
Preventing and detecting grant fraud requires fighting the battle on many different fronts. Here a couple key areas:
#1 Monitor to Reduce Opportunity
Having procedures, and policies in place to deter direct and indirect fraud within an organization is similar to taking a save driving course to lower car insurance premiums.
However, while there is certainly truth in the old adage “an ounce of prevention is worth a pound of cure”, a safe driving course simply cannot guarantee accident-free driving, nor can anti-fraud procedures and policies guarantee fraud will never occur within an organization.
Careful monitoring of anti-fraud policies and programs are necessary to reduce the opportunity for a misappropriation to take place.
It is also important to have a strong ethics policy in place and monitor for behaviors that may indicate motivation and rationalization towards unethical behavior.
(Want to see some examples of concealment behaviors? Check out 9 Lies that Fraudsters Like to Tell)
#2 Knowledge is Power
Here are a couple other things that organizations can do to reduce the risk of grant fraud:
First, provide grant management training so employees understand what behavior is a violation of the grant terms and conditions. This includes periodic training for employees on the organization’s internal policies and procedures.
Next, it must be understood that individuals who commit fraud are deliberately making an effort to not only take advantage of existing opportunity, but also are frequently in positions where they are able to use their knowledge of the organization and/or authority in an organization in their attempt to circumvent organizational anti-fraud efforts.
That’s why it’s important to establish and communicate a whistle-blower program so employees have a safe way to report their suspicions to the appropriate oversight group.
Grant management is not just about doing everything right. It also includes monitoring to make sure things aren’t being done wrong.
Lucy Morgan CPA, MBA
CEO, Compliance Warrior