Do Your Employees Want to Find Fraud?

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When ACFE Regent Kenneth Dieffenbach, CFE, took to the virtual stage at the 32nd Annual ACFE Global Fraud Conference, he reminded his audience of their pivotal role. “Fraud examination really does matter, no matter how tedious or lengthy investigations can be,” he said. He stressed the importance especially for fraud examiners working in the public sector. “No matter where you live, travel or work, the government has to have the proper guardrails to fight and deter corruption. Some governments have a higher perception of corruption than others, but they’re all at risk for public and private corruption.”

As a member of the U.S. Department of Justice - Office of the Inspector General (OIG), Dieffenbach offered his insights into the distinct challenges facing fraud deterrence within government agencies. His session, “Fraud in Government Programs: Unique and Not-So-Unique Compliance Dilemmas,” started by identifying the factors that contribute to differing degrees of transparency within the public and private sectors. In the private sector, transparency is a business decision that is beholden to shareholder interests and regulators. In contrast, thanks to President Carter’s Inspector General Act of 1978, all records from the OIG are available for all office investigators.

Dieffenbach then elaborated on some other common issues that plague federal branches as well as the general compliance world. “Fraud prevention, ethical cultures and fraud deterrence should first and foremost be the responsibility of the agency or company,” he said. This responsibility extends to government officials, no matter where they sit.

One important factor in detecting fraud relates to the attitude of employees. Dieffenbach said, “For a typical manager or middle manager for a private company or a government entity, is it good news or bad news if they find fraud in their program? It depends on the person, but generally speaking, I’ve often thought that to the newer employee, or to the owner or to the senior executive, they would immediately say, ‘Finding fraud in my program, in my project, in my business unit — that’s good because I want to identify and stamp it out.’”

However, he said that attitude differs depending on the level of the employee. “I’ve often thought that the middle-level manager ... the person that is not in an ownership or a senior executive position, they may view finding fraud as bad news. And they may say, ‘When someone finds fraud, they’re going to be looking at me more closely. They might possibly blame me for these things, this is going to look bad on my career, I could get fired, I could get demoted, I might get that program taken away from me.’ So, we need to always be thinking, ‘Does this person want to find a problem?’ The answer to this will change how we interview and audit.”

Dieffenbach next tackled the issues that arise from the sheer amount of data that exists in this age of information. While the quantity of available data is a blessing, it can also lead to being inundated. He urged investigators to strike a balance between how much data there is to be sifted through and which stones will need to be left unturned so that the investigation remains timely and relevant. Dieffenbach noted the need to consider potential challenges and setbacks when requesting access to records from third-party entities — such as other government agencies for fraud examiners in the public sector, or from vendors or customers for those in the private sector. When dealing with third-party records and conducting investigations in general, it’s also crucial to have confidentiality and whistleblower policies at the forefront.

Dieffenbach also stressed the importance of clear communication. “We have to say what we mean and mean what we say,” he said. “I would encourage everyone to have a very careful and ongoing, clear dialogue about the language we use, especially with our public, because it matters dramatically if you say someone did something on purpose, they did something intentionally, they did it negligently, they did it with knowledge, they did it with malice or they did it because they just weren’t prepared or properly resourced.”

“We have to make sure we address these public corruption issues proactively, fairly, aggressively and objectively. We have to make sure we’re collecting the facts and letting them settle where they may. We don’t collect facts just to prove someone did something wrong. We have to do it objectively and fairly.”