This informational guide provides a basic understanding of Fraud, Waste and Abuse. Differences in organizations and programs may require variations to the analysis. This reference guide does not supplant the need to understand Federal, State, and Local requirements.
Fraud
Fraud is defined as an intentional act of deception, misrepresentation, or concealment in order to gain something of value. Fraud includes false representation of fact, making false statements, or by concealment of information. Examples include, but are not limited to, the following:
- Falsification of information during the applications or procurement process
- Billing for services not rendered or duplication of payments
- Alteration of documents or forgery, which may include contracts, purchase orders, and invoices
- Bribery or kickbacks
- False claims or bid rigging
- Theft, embezzlement, or other misapplication of funds or assets
- Impropriety with respect to reporting financial transactions
- Falsifying eligibility
Fraud Quick Guide
Be on the lookout! The list of general fraud indicators presented below is not meant to be all-inclusive and should not preclude program staff from identifying and considering other indicators. However, the items presented below should raise awareness to a greater possibility of fraud occurring or being present:
- Management override of key controls
- Lack of documented or monitored internal controls
- Lack of, or outdated, processes and procedures
- Lack of separation of duties and chain of command
- Overly complex organizational structure
- Key employee never taking leave or vacation
- High turnover rate, reassignment, firing of key personnel
- Missing or destroyed electronic or hard copy documents
- Poor quality or illegible photocopied documents
- “Unofficial” electronic files or records instead of “archived” or “official” files or records
- Unsupported revisions or alterations to data files or records
- File modification dates that do not fit the appropriate timeline for when they were created
- Missing signatures of approval or discrepancies in signature/handwriting
- Computer report totals that are not supported by source documentation
- Lengthy unexplained delays in producing requested documentation
Waste
Waste is defined as overutilization of services (not caused by criminally negligent actions) and the misuse of resources. Failure to comply with laws, rules, and regulations could lead to incurring unnecessary costs resulting from inefficient or ineffective practices, systems, or controls. Incurring these unnecessary costs may constitute waste and mismanagement of federal funds. Some examples included, but are not limited to, the following:
- Purchasing unnecessary supplies, material, and equipment
- Purchasing supplies material, and equipment without regard of cost
- Using supplies, materials, and equipment carelessly resulting in unnecessary waste and replacement
Abuse
Abuse is defined as excessive or improper use of services or actions that are inconsistent with acceptable business practice. Abuse can occur in financial or non-financial settings. Examples include, but are not limited to, the following:
- Making procurement or vendor selections that are contrary to existing policies or are unnecessarily extravagant or expensive
- Receiving favor for awarding contracts to certain vendors
- Using one’s position for personal gain or to gain an advantage over another
- Taking excessively more time than necessary to perform a task or function
Whistleblower Protection
Colorado Whistleblower Laws
The Whistleblower Protection Act (WPA) (5 U.S.C. § 2302(b)(8)) protects Federal employees or applicants for Federal employment from retaliation for making protected disclosures. The WPA also provides penalties for supervisors who retaliate against Whistleblowers.
At the state level, Colorado has two statutes that protect whistleblowers. One statute, Colorado Revised Statutes Section 24-50.5-103, protects public (state) employees, while the other statute, Colorado Revised Statutes Section 24-114-102, protects private sector employees.
For public employees, the statute provides that any employee who provides or discloses information regarding illegal policies or actions not in the public interest may not be retaliated against. This protection does not apply to:
- Employees who disclose information that they know to be false or who disclose information with reckless disregard for its truth;
- Employees who disclose information from public records which are closed to public inspection; or
- Employees who disclose other confidential information.
A public employee must file a written complaint within 30 days from the incident of retaliation, and may file a lawsuit only if the complaint is denied. Whistleblower retaliation is any adverse action that a company takes against an employee because he or she has reported, either internally, illegal conduct on the part of a company. Termination is an extreme form of retaliation.
For private employees, the statute also prevents retaliation, with exceptions similar to those listed above for public employees. However, an important requirement is that the employee must make an effort to provide the information directly to their supervisor or other internal authority before disclosing it to an outside source.
Unlike the public sector statute, private employees may bring a civil lawsuit for wrongful termination or termination in violation of public policy without going through a formal complaint process.
Steps to Take Prior to Award
Recipients of federal funds should take the following steps to avoid fraud, waste, and abuse:
- Implement Internal Controls.
- Implement policies and procedures which address the inner workings and operations of the organization and grants management (including an organizational/staff chart).
- Train staff on the types of fraud, waste, and abuse – including the review of the “Categories and Indicators of Risk” -- to be aware of the types of fraud that occur in various tasks and programs. Staff also need to be trained to know what to do, why, and when to report suspected activity.
- Verify that the applicant or contractor is not listed as suspended or debarred on Sam.gov. Entities and persons found on these lists are ineligible to participate in federally funded programs.
- Perform a Duplications of Benefits (DOB), Duplication of Benefits, analysis to ensure that there is no duplication of benefits.
- Include your agency’s fraud hotline in your communication channels if you agency has a hotline. Also include the State of Colorado portal for the report of fraud, waste, or abuse of State funds. These channels will allow anyone with evidence of fraud, waste, or abuse activity to report such activity to the prime recipient responsible for compliance and oversight of federal expenditures.
Waste, Fraud, and Abuse Reports
Each agency should have a policy for how to handle reports of fraud, waste, and abuse. Typical steps in the handling of waste, fraud and abuse reports include:
- The report, disclosure or tip is received and reviewed,
- The report and evidence provided is evaluated to validate it coincides with waste, fraud, or abuse, and further documentation may be requested,
- The information is sent to management, an oversight agency, or legal authorities for further investigation, including Office of Inspector General in the U.S. Department of Treasury,
- An investigation will be undertaken and completed, and
- Based on findings resulting from the investigation, prosecution or other appropriate action will be taken.