Values and Ethics as a Public Sector Fraud Control Financial Management Institute June 17 2009

1. Values and Ethics as a Public Sector Fraud Control Financial Management Institute June 17 2009 Allen Tait, CA, CFI Senior Investigations Manager Ontario 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?