Government and Public Administration is the second most represented sector victimized by fraud.[1]  Corruption, billing and expense reimbursement schemes are the most common types of fraud in this sector.  Billing and expense reimbursement schemes are similar, where the perpetrators of these frauds produce false documents that cause the victim organization to make a fraudulent disbursement.  What are these fraud schemes and what can be done by the Government and Public Administration sector to help prevent them?

Billing schemes generate fraudulent cash by an employee either creating false vouchers and invoicing via a shell company or submitting false invoices to an employer via a non-accomplice vendor.  Billing schemes also include purchasing schemes where an employee makes personal purchases with organization funds, including credit cards and p-cards.

Expense reimbursement schemes produce false expense reports to generate fraudulent cash.  The major difference between these frauds and billing schemes is that an expense reimbursement fraud involves disbursements directly to employees rather than to an external party used by an employee as the source of cash.

There are various internal controls that the Government and Public Administration sector can establish to help prevent these types of fraud.  Internal controls should focus on potential areas of weaknesses and could include:

  • Documented policies and procedures for procurement and spending, such as bids and quotes, purchase orders, invoicing and payments.
  • Separation of duties between authorization, purchasing, receiving, shipping and accounting, if possible.
  • Periodic review of the master vendor list, vendor purchases and credit card statements for irregularities.
  • Budgeting and detailed review of actual spending.
  • Expense reports submitted with detailed supporting information, including receipts, explanation of expense, time period, place and amount.  Detailed reports must not only be submitted, but they also need to be independently reviewed.

Contact us if you have concerns that fraud is occurring or has occurred at your governmental entity and visit our Business Advisory webpage to learn more about other services that the Schneider Downs Business Advisors offer.

[1] According to the 2016 Report to the Nations on Occupational Fraud and Abuse, published by the Association of Certified Fraud Examiners (ACFE)

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