U.S.

Department of Justice
Office of Inspector General
Fraud Detection Office

GRANT FRAUD
AWARENESS

SA Laura Rousseau
202-353-2975
 What is the DOJ OIG?

¾ Responsibility & Authority

¾ Focus

¾ Components
 American Recovery and
Reinvestment Act of 2009
¾ $787 B. includes approximately $400 B. for
grants / cooperative agreements, $60 B. for
procurements, $327 B. for tax cuts and other
federal spending programs
¾ Emphasis: Job Creation; Transparency;
Accountability; and Oversight
¾ Multiple Oversight Mechanisms: 68 Federal
OIG’s, Recovery Accountability and
Transparency Board / Recovery.gov; OMB;
GAO; 56 State Administering Agencies
Feb 18, 2009 OMB Guidance –
Disclosure Requirement
Agencies must “[i]nclude the requirement that each grantee
or sub-grantee awarded funds made available under the
Recovery Act shall promptly refer to an appropriate
inspector general any credible evidence that a principal,
employee, agent, contractor, sub-grantee, subcontractor,
or other person has submitted a false claim under the
False Claims Act or has committed a criminal or civil
violation of laws pertinent to fraud, conflict of interest,
bribery, gratuity, or similar misconduct involving those
funds.”
 What is
Grant Fraud?
 Fraud Assumptions

¾ It Happens

¾ Prevent / or Detect it Early

 Fraud’s Consequences

¾ Organizational Reputation /
Survival
¾ Administrative
¾ Civil
¾ Criminal
The Keys to Preventing, Detecting and Stopping Fraud:

PROFESSIONAL SKEPTICISM
&
COMMUNICATION
 Grant Process

Application Performance
Budget Draw Downs
Assurances Monitoring
Grant Conditions Gov’t Management
Eligibility FSR Certifications

INTEGRITY BASED SYSTEM

OMB Circulars
 Process Safeguards

¾ Grant Management / Desk Audits

¾ Grantor Monitoring
¾ OIG Audits
¾ A-133 / Single Audit Act
Mistakes Gross Criminal
Negligence Fraud
 Common Grant Fraud
Schemes

1. Conflicts of Interest

2. “Lying” About the Use of Funds

3. Theft
 Conflicts of Interest
¾ Typical Issues:
ƒ Related Party Transactions (Grantee or Board
Member)
ƒ Grant / Sub Grant Award Decisions
ƒ Consultants: Who, What, How, How Much?
ƒ Grant Writer Fees / Contingent Fees
¾ Know your Grantee Conflict of Interest Statement
 Chapter 3, OJP Financial Guide

“No official or employee of a State or unit of local government or a

nongovernmental recipient/subrecipient shall participate personally
through decisions, approval, disapproval, recommendation, the
rendering of advice, investigation, or otherwise in any proceeding,
application, request for a ruling or other determination, contract, award,
cooperative agreement, claim, controversy, or other particular matter in
which award funds (including program income or other funds generated
by federally funded activities) are used, where to his/her knowledge,
he/she or his/her immediate family, partners, organization other than a
public agency in which he/she is serving as an officer, director, trustee,
partner, or employee, or any person or organization with whom he/she
is negotiating or has any arrangement concerning prospective
employment, has a financial interest, or has less than an arms-
length transaction.”
 Chapter 3, OJP Financial Guide

“In the use of agency project funds, officials or employees

of State or local units of government and nongovernmental
recipient/subrecipients shall avoid any action, which might
result in, or create the appearance of:

9 Using his or her official position for private gain;

9 Giving preferential treatment to any person;
9 Losing complete independence or impartiality;
9 Making an official decision outside official channels; or
9 Affecting adversely the confidence of the public in the
integrity of the government or the program.”
 Preventing Conflicts of Interest
ƒ Educate every employee and board member on
the defined COI prohibitions.
ƒ Ensure procurement procedures are well-
designed and followed.
ƒ Consultants: Who, What, How, How Much?
ƒ Document the facts and have another party review
them.
ƒ If in doubt about a potential COI situation, seek
written guidance from the grantor.
ƒ A fully disclosed and approved potential COI probably
ceases to be a COI.
 “Lying”
¾ Typical Issues:
ƒ Labor Hours / Wages; Types of Equipment / Supplies / Events;
Indirect Cost Rates; “Level of Effort”
ƒ Program Income / Matching Funds
ƒ Other Grants Fund the Same Program
ƒ Political changes to use of funds
¾ Financial Certifications & Draw Downs must be supported with
evidence such as receipts, expense reports or cancelled checks.
¾ Progress reports must be factually accurate.
¾ Signed grant agreement is a contract: changes to budgets and
program must be approved.
Preventing “Lying” About the
Use of Funds
¾ Ensure interested parties read the grant agreement;
maintain written correspondence with grantor about any
program or budget changes.
¾ Keep well-organized and complete accounting books and
records (consider using financial software or spreadsheets).
¾ Practice logical and supportable expense recording
procedures– time sheets, draw down calculations, etc...
ƒ The person who signs grant award, FSR’s and other

documents is personally liable– support all assertions.

¾ Pay close attention to: indirect cost rates; program income;
multiple awards; expiring money.
¾ Fully disclose problems with grantor and seek assistance.
 Theft
¾ Single most common risk for every entity– It can and
does happen.
¾ Poor or no internal controls = Virtually inevitable theft.
¾ “Trust” is not part of the equation.
¾ Checks routinely written to employees as
“reimbursement” of expenses should be carefully
analyzed.
¾ Gift Cards / ATM / Debit / Credit Cards are easily abused.
 Preventing Theft
¾ Ensure internal controls are well-designed and properly implemented
and tested.
ƒ Separation of Duties: receipt, disbursement, recording, custody, &
audit / review functions should be done independently.
¾ Consider using a fiscal agent or bookkeeper.
¾ Carefully control debit / credit / gift cards and checks.
¾ Pay close attention to: “payroll advances”; employee reimbursement
checks; IRS tax withholding payments & other payroll issues; past-due
vendor invoices.
¾ To increase deterrence and detection, educate every employee, board
member, and coalition partner about this risk.
Questions?
SA Laura Rousseau
Laura.Rousseau@usdoj.gov
202-305-9615

www.usdoj.gov/oig
800-869-4499
202-353-2975