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 and concealing grant fraud.
Committing fraud is a deliberate action; efforts to conceal that fraud are also just as deliberate.
The 3 Ingredients in the Grant Fraud Triangle
Concealing grant fraud starts with a “recipe” for committing the deception.
The recipe includes these three ingredients:
When these three ingredients are combined, it creates an environment where deliberate misuse of funds can happen.
To deter grant fraud, you want to start the process by focusing on systems that reduce the opportunity for fraud.
When you reduce the opportunity, you reduce the risk that grant fraud and mismanagement can take place.
However, we need to also be on-guard for warning signs of the other two elements of the fraud triangle:
How the “Blame Game” is Used for Concealing Grant Fraud
The old adage says, “the best defense is a good offense.”
In other words, beware when an offensive attack is launched against you when 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” with accusations that you are 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)
But if you are caught in the hurricane of the “blame game,” it may just mean you are on the right track.
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 of 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
When employees have the opportunity and the motivation to commit and conceal grant fraud, all that’s needed now if the rationalization to do the deed.
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 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 are a couple of 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 safe 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 misappropriation to take place.
It is also important to have a strong ethics policy in place and monitor 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 a Powerful Fraud Finder
Here are two 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 should include 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 the 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.
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Lucy Morgan CPA, MBA
CEO, Compliance Warrior
Author of “Decoding Grant Management-The Ultimate Success Guide to the Federal Grant Regulations in 2 CFR Part 200” The 2nd Edition is now available on Amazon in Paperback and Kindle versions.