What do we mean when we talk about fraud? Here’s a primer on what fraud is, and what you can do to report it.
We’ve heard the word fraud frequently in the last couple of weeks, primarily in the context of voter fraud. But while voter fraud is actually rare, other forms of fraud are more commonplace, and occur in just about every organization, from small dentist offices to large, multinational corporations and governments. In fact, according to a survey conducted by the Association of Certified Fraud Examiners (ACFE), the typical organization loses about 5% of its revenue each year to fraud.
Fraud is really theft, but we use the word fraud, because fraud encompasses so many different schemes. And while theft is included as one of those schemes, there are others, as well. These range from overbilling by a supplier, or a supplier delivering substandard goods or services (two variations on the same scheme), to an employee pocketing cash headed from the customer to the cash register.
There are very sophisticated fraud schemes, such as financial statement fraud, where an employee manipulates financial accounts or even creates false accounts or separate businesses, like shell companies. A shell company is a company in name only, and sometimes is designed simply as a vehicle for passing money along in a way that is more difficult to track. This is similar to what happened in the Enron scandal that became public in 2001. Great investment losses were shuffled into accounts outside of Enron, thus making the company’s financial health look better than it was. Embezzlement is a similar scheme, though usually smaller scale, where a trusted employee is able to siphon off their organization’s money into a separate, personal account. Fans of the movie Office Space will recognize the plan to steal “fractions of pennies” as an embezzlement scheme.
Fraud can also come in the form of corruption, which includes bribery - the giving or receiving of money (or something else of value) in exchange for an official action. An example would be a building construction contractor paying a government official to get around permitting processes, or a construction company providing free construction services to an employee who is able to steer a valuable contract their way. Other types of corruption include conflicts of interest, such as hiring a family member or steering a contract toward a friend, rather than seeking the most qualified business; and kickbacks - similar to bribery - where a company official receives a “kickback” from money that has been paid out to a contractor.
If you know of, or suspect fraud in Multnomah County government, or you believe Multnomah County government is the victim of fraud by an outside organization, contact the Good Government Hotline at 888-289-6839 or go to the hotline’s webpage.
Here are some fraud definitions that may help you understand how and when fraud may be occurring:
Bid rigging: Bid rigging can take many forms, but one common form is when a group of competitors agree in advance on which firm will submit the lowest bid and win the contract. In such a situation, competitors may agree to take turns being the low bidder. Contracting processes (such as not using price as the sole qualifier), can help prevent this type of fraud.
Contract steering: Contract steering occurs when someone in an organization “steers” a contract toward a specific contractor rather than seeking the most qualified and cost-effective bidder.
Fictitious employee: This scheme takes some access to and knowledge of the payroll system, generally. It occurs when an employee is able to create an employee that doesn’t really exist in the organization, and pay that employee, often through a direct deposit to their own account or a family member’s account.
Billing scheme: Billing schemes can take various forms, from a vendor or contractor “padding” an invoice, to a contractor billing for completely fictitious goods or services.
Embezzlement: Put simply, embezzlement is theft. The most common scenario is embezzlement from one’s employer, through siphoning off of funds, or by taking equipment or merchandise home. Often the embezzler has legitimate access to their employer’s funds or equipment, but converts it to their own use. For example, using an employer-issued credit card (or p-card) to make personal purchases is embezzlement.