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Office of the State Auditor

What Is Fraud?

Fraud is...

  • an intentional misrepresentation of fact, whether by words or conduct, by false or misleading allegations, or by concealment of what should have been disclosed;
  • made by one person to another;
  • with knowledge of its falsity;
  • for the purpose of inducing the other person to act, and upon which the other person relies;
  • resulting in injury or damage.
Occupational Fraud

The OSA's Fraud Hotline is specfically targeted toward fighting occupational fraud, which is the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources or assets.

Within state government, occupational fraud involves those situations in which a current or former state employee or contracted individual (i.e., individual currently or formerly acting under a contract, purchase order, or other similar agreement for the procurement of goods and services with a state agency) may be using their position or access to commit fraud against the State or others.

There are three general categories of occupational fraud, all of which should be reported to the OSA's Fraud Hotline if suspected:

 

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Involves the theft or misuse of money, equipment, information, supplies, or other State resources. Common examples include:

  • Falsified invoices
  • Falsified travel expense reports
  • Use of procurement cards to purchase personal items
  • Skimming cash receipts
  • Theft of cash-on-hand, supplies, or other inventory
  • Falsifying time records (including paid leave accruals and use) or other payroll information
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Involves state employees or officials using their influence in a business transaction, contrary to their duty to the State or the rights of another, in order to procure some benefit for themselves or another person. Common examples include:

  • Soliciting or accepting a bribe or kickback
  • Bid rigging
  • Illegal gratuities
  • Extorting funds from third parties
  • Engaging in transactions where a conflict of interest is present
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Involves the intentional misstatement or omission of material transactions, events, or other information from State's financial reports and exhibits with the intent to deceive users. Common examples include:

  • Manipulation, falsification, or alteration of accounting records or supporting documents from which financial statements or other reports are prepared
  • Intentional misapplication of accounting principles relating to amounts, classification, manner of presentation, or disclosure
  • Deliberately overstating assets or revenues
  • Deliberately understating liabilities or expenses
The Fraud Triangle

The fraud triangle is a model for explaining the factors that cause someone to commit occupational fraud. It consists of three components which, together, lead to fraudulent behavior:

fraud_triangle_image.png

 

Pressure — The fraudster has some financial problem, which can be personal or professional, that they are unable to solve through legitimate means. They begin to consider committing an illegal act, such as stealing cash or falsifying an expense report, as a way to solve their problem.

Opportunity — The fraudster must see some way they can use (abuse) their position of trust to solve their financial problem, as well as a means by which they can conceal their crime to avoid getting caught. The perceived opportunity defines the method by which the crime is eventually committed.

Rationalization — The fraudster must justify the crime to themself in a way that makes it a justifiable act in their mind. The vast majority of fraudsters are first-time offenders with no criminal past; they do not view themselves as criminals. Fraudsters commonly rationalize their crime by telling themselves that they are ordinary, honest people who were caught in a bad set of circumstances that left them no other choice.

Association of Certified Fraud Examiners
How to be a Fraud Fighter in Your Organization
Download Fraud Primer

The effective date for bills enacted without a safety clause is August 6, 2025, if the General Assembly adjourns sine die on May 7, 2025 (unless otherwise specified). Details