It’s 3:30 a.m. - I’m awake; that’s odd because bedtime was only 3 hours ago. Yesterday, I was compelled to engage in training required by Texas’ PFIA (Public Funds Investment Act). One of the segments of yesterday’s presentation was on the subject of fraud. The materials were based on a report published just last year (2012) by the Association of Certified Fraud Examiners (AFCE). Our instructor promised to e-mail me his powerpoint presentation, but I haven’t received it yet. Even so, I’ll share with you random pieces of his lecture that now, at 3:30 a.m., flood my thoughts and keep me from further sleep. I’ll try not to make-up what I can’t remember.
• It’s estimated that the typical organization loses 5% of its revenue to fraud each year.
• On average, it takes 18 months to discover an act of fraud.
• Fraud is committed through a number of various schemes:
o Asset misappropriation
o Corruption
o Financial statement fraud
o Skimming
o Falsified expense reports
o Collusion
o Intentional misstatement of financial statements
• Employees with more than 5 years of service commit more acts of fraud than employees with less than 5 years of service.
• Most of the worst losses from fraud are those from acts committed by trusted employees.
My college has very tight internal controls. We have a professional Internal Audit Department. We have an external auditor review and render opinion on our annual financial reports and our A-133. State agencies, federal agencies and others from whom we receive funds regularly review our use of their money. With all that, does my college still face potential loss of 5% though fraud? In recent years we have weathered cuts in state funds and losses in local tax property tax revenues. Enrollments rise and enrollments fall; accordingly, so does tuition revenue. Sequestration of federal funds is a threat that, again, looms on the 2 month horizon.
In the face of so many external threats, have we taken appropriate steps to counter the threats from within? Can we afford to lose 5%? Can we afford to lose anything? Financial impact aside, what kind of damage does fraud cause on public trust and our colleges’ image?
Soooo........ what keeps YOU awake at night? (still can’t sleep – might as well get some coffee to brewing) ...Ed, your CCBO President
Post Script: after writing these remarks, I did a google search and found the report the PFIA instructor cited yesterday. You can find it at: http://www.acfe.com/rttn.aspx
Sleep well, my friends and fellow business officers.