Values and Ethics as a Public Sector Fraud ControlFinancial Management Institute

June 17 2009Allen Tait, CA, CFI

Senior Investigations ManagerOntario Internal Audit Division

Ministry of Finance

2

Objective of Session

• Discuss theoretical concepts• Review case studies• Presentation designed to foster debate• Presentation not designed to provide a “one size

fits all” answer

3

Terminology

• Values: something of importance (individually subjective)

• Ethics: code of behavior (organizational influence, personal interpretation)

• Fraud: defined by Criminal Code of Canada

4

Public Service – Unique Characteristics

• Regulatory function• Mandatory service provider• Monopoly• Client service expectations (taxes v prices)

5

Impact – Public Service and Ethics

• High client service expectations (monopoly and taxes paid)

• High level of ethics expected• COI double standard – preferred vendors private

sector – OK; public sector - scandal• Lack of perspective – Corporate upscale lunches

OK; public sector expense coffee –scandal

6

Sources of Public Sector Fraud Risk

• Internal• External

7

Types of Fraud Risk

• Monetary• Information• Granting of rights and approvals (i.e. zoning)

8

How are Values and Ethics Used as a Fraud Control in this Environment?

• Senior management has responsibility to set and meet ethical principles

• Provides staff with guidance• Sound ethics should support staff to develop

values consistent with ethical principles• Actions should satisfy staff as taxpayer, not as

employee

9

Specific Measures

• PSOA provides whistleblower process• OPS provides training and a supportive culture• Central functions (OIAD, Controllership, IT

Security, HR) provide training and proactive fraud detection services

• Investigative protocols exist – fact gatherers, have cleared wrongly accused as well as helped victim Ministries address wrong doing

10

Case Study One – Not Petty

• Year end cheque to replenish petty cash cleared 10 days after year end

• Clerk could not balance• Put in own money to cover, did not tell supervisor• Fraud – no• Principle – employee “my error so I pay” – ethical• Supervisor – non disclosure = deception = not ethical

employee

11

Case Study 2 – How to Procure an Investigation of Your Actions

• Multi year project• Technically complex• Limited number of qualified providers

12

Case Study 2 – Project Management Decisions

• Required annual budget approval for subsequent years

• Multi milestones established within each year – prudent project management

• Distinct projects put out for tender – competitive price/avoid technical dependence

13

Case Study 2 – Decision Impact

• Experience heavily weighted criteria• Same vendor won all tenders• DOA circumvented by design of milestones• Technical dependence created

14

Case Study 2 - Rationale

• Work was good • Prices were reasonable for industry• New supplier could not have assumed work mid

stream• Above 3 points validated• Nothing wrong except optics

15

Case Study 2 – However…

• Why was personal relationship not disclosed?• Why were competing bids not from legitimate

alternate vendors?• Why was project split at a consistent threshold

just below a higher DOA?• Is this more than optics?

16

Case Study 3 – Classic Conundrum

• Generalization 1: a majority of the public expect government regulation to protect natural resources

• Generalization 2: the public has a growing acceptance of targeted government revenue generation to reduce general government expenditures

• Generalization 3: a model of regulation and revenue generation is laudable

17

Case Study 3 – Setting the Stage

• Natural attractions require infrastructure to support tourism

• Tourism is good for the economy• Private sector investment needed• Public sector must regulate development• Public sector needs to generate revenue

18

Case Study 3 - Issue

• Public sector rejects a private sector proposal to protect the natural attraction

• Private sector disputes decision – alleges suppression of competition

• Public sector announces revenue generation program

• Private sector alleges abuse of regulatory authority to harm private sector

19

Case Study 3 - Result

• Inherent conflict created by merging of 2 individually supportable public sector goals

• Virtually any decision of this type will be disputed by a party based on their value (protection or profit)

20

Conclusions

• Public Sector works in a challenging environment

• Regulatory powers will continue to be required• Values and Ethics can help manage fraud risk• Values and ethics will not resolve all challenges

21

Case Study 1 – Conclusion

• Demonstrates subjectivity of values on perceptions

• Common set of facts, 2 different interpretations• Difference – penalty v disclosure

22

Case Study 2 – Conclusion

• Decision justified on selective facts• Decision questionable in relation to all facts• Difference of opinion on values and ethics• Fraudulent acts may exist

23

Case Study 3 - Conclusion

• Personal value decisions can lead to difference of opinion on ethics of decision made

• Questionable ethics not a fraud by definition

24

Overall Conclusions

• Values can be personal and subjective• Articulation of values helps interpretation of

public sector decisions• Ethics an important reference to support values • Important tools to aid in fraud prevention,

however, challenges will remain

25

Questions?