Fraud in Government Versus Private Industry

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When we think of fraud in governmental agencies, we often think of the sleazy-sounding bribery and corruption. Maybe you think of the bribe paid to secure a contract, or a kickback to an official for pushing a large project toward a friend’s company. Things like illegal gratuities and extortion are also perceived as occurring in governmental agencies more often than in the private sector.

While those things do happen in governmental agencies, it may surprise you to know that they’re not necessarily the most common or the most costly types of fraud occurring in the public sector.

Government fraud happens the same way fraud occurs in the private sector. You might hear the phrase “waste and abuse,” and that’s probably a pretty accurate way to view the bulk of fraud committed against governmental entities. Government agencies rely on funds from the public to carry out their work, and when that money is used for illegal purposes, taxpayers feel that their money has been wasted and their trust abused.

At times it seems as though governments have a limitless supply of funds. If the money runs out, a new tax is likely to replenish the supply. That’s what makes it so easy for companies and individuals to justify bilking the government out of money. The open checkbook mentality makes it seem as if there is not a tangible victim in such a scheme.

The Facts on Governmental Fraud
More than $652 billion was estimated to be lost to employee fraud in the United States every year, according to the 2006 Report to the Nation on Occupational Fraud and Abuse, published by the Association of Certified Fraud Examiners (ACFE). This figure includes all fraud committed by employees, in all industries and sectors.

However, the amount of internal fraud experienced by governmental entities actually appears smaller than the occupational frauds happening in all industries as a whole. Government agencies suffer median losses that are only half as much as those that occur in the private sector. Publicly traded and private companies experience fraud losses that are $200,000 to $210,000 on average, while government losses are only about $100,000 on average.

Billing fraud and theft of non-cash assets are the most common internal frauds experienced by governmental agencies. Billing fraud occurs when those providing goods and services to an entity overcharge or create otherwise false billings, and payment is secured on the false invoices with the help of an employee of the governmental agency. The theft of non-cash assets includes an employee stealing equipment, supplies, or other items used by the agency in fulfillment of its duties.

Cases of corruption and financial statement fraud occur less often in government, when compared to all organizations. The ACFE study found corruption in only 26 percent of government cases, while all industries experienced corruption in almost 31 percent of fraud cases. Financial statement fraud happens less often in government as well, with only 4 percent of fraud cases including a financial statement fraud element, as compared to almost 11 percent across all industries.

That $652 billion a year in fraud losses is outrageous, and when we look at the government sector alone, the fraud losses are equally as staggering. In 2004, the Government Accountability Office identified over $45 billion of improper payments by 17 federal agencies. However, this figure excluded at least 12 specific federal programs with significant budgets and significant fraud risks. So it’s quite possible the fraud against the federal government much higher.

More Susceptible to Fraud?
The statistics show that governmental fraud is less prevalent and less costly than fraud across all industries as a whole. Is this really the case? Or do government agencies have just as much (or more) fraud than the private sector, but don’t discover it as often?

That’s a hard question to answer. To say that government agencies have more fraud and just don’t know it would be a sweeping generalization without hard data to prove it. On the other hand, my discussions with other fraud examiners lead me to believe that at the very least, the government is more susceptible to fraud than private industry.

It would seem that this shouldn’t be the case. In a way, the government has unlimited access to funds. If they need more money, they create or raise a tax. This perceived unlimited funding should lead to resources to combat fraud.

On the other hand, the real world demonstrates something different. There may be a lot of resources available to the government, but it doesn’t appear that they’re spending a lot of money on fraud prevention and the improvement of systems. Go check out the average municipality and see how up-to-date their accounting computer systems are. Lots of them have old systems, and outdated systems aren’t as good at heading off fraud.

Talk to government employees who work in an accounting capacity, and see how often they tell you that money isn’t spent on fraud until after it is discovered. Until the budgetary hand is forced to do something because of a crime, money often isn’t voluntarily spent on the fraud issue.

Solutions For the Future
One might expect that the government would be very diligent in fighting against fraud. After all, they are using my money, aren’t they? And don’t they owe it to all taxpayers to safeguard those assets and make sure they’re being appropriately spent? Again, it appears that’s not the focus of the governmental agencies that use our money.

The victims of governmental fraud are many. Not only are taxpayers robbed of honest services and responsible use of their money. Victims also include those who might have benefited from legitimate government programs and policies funded with taxpayer money.

There is hope, however. The ACFE study found that government agencies tend to rely less on the accidental detection of fraud, when compared to all industries as a whole. Their detection of fraud by tips and external audits was more common than for all industries. So while I may be of the opinion that the government is not doing enough to prevent fraud, the evidence suggests that in the area of proactive detection of fraud, the government is actually doing better than private industry.

It is my hope that governmental agencies will build on these successes and take a more proactive stance against fraud. The way to prevent fraud in government is really no different than in private industries, however. Solid fraud prevention is achieved through an efficient combination of internal controls over assets, education of employees about fraud schemes, and enforcement of agency policies and procedures.

6 thoughts on “Fraud in Government Versus Private Industry

  1. “Until the budgetary hand is forced to do something because of a crime, money often isn’t voluntarily spent on the fraud issue.” This is spot-on, and from my experience, reactionary spending is usually a few multiples more expensive than well-planned preventative spending!

  2. Ochre Media – Fraud company / Spam company

    Is there any association online where we can complain about companies fraud. In this 21st century digital age, many online companies came up apart from financial fraud this company gives very poor service or no service at all.

    We faced this with the company called Ochre Media Pvt Ltd. Ochre media showed they healthcare and Pharma magazine got over 70k circulation and region wise breakdown but in reality magazine circulation was not more than 1k.

    Even with email marketing campaign, same problem Ochre media email marketing campaign promised to deliver 10k emails (all are opt-in) ochre media didn’t deliver even 1k emails but generated reported stating 10k email delivered- click and open report as well. We placed our own code as well to monitor.

    The sad part is we paid full payment before Ochre media run an email campaign.

    Ochre media call themselves as number one company in digital marketing b2b portals

  3. Hi Lee

    I am victim of Ochre media Pvt Ltd fraud company located in secundrabad / Hyderabad .

    Stunning facts about Ochre Media Pvt Ltd was relieved by X employee of Ochre Media Pvt Ltd. He started by say Ochre Media as fraud and scam company.

    Facts he relieved
    1. Ochre media fraud company claims that pharma and hospital magazine hard copy circulation is 50k + and even they provide breakdown circulation region and designation wise as well. But in reality magazine circulation is “just below 1k”.

    2. Ochre media maintain 7+ b2b portals – plant automation, defence, plastic, pulp and paper, pharma and hospitals and states that they got 1000 + companies listed. All the listed companies are free and they are on a site since ages with outdated address and products list.

    Ochre media won’t be able to provide 5 satisfied clients list from 1000+ that is one of the wonderful part of fraud ochre media company.

    3. X employee strongly suggested not to go for email marketing with this company. Ochre media don’t have any email data forget about opt-in emails. Manipulates email marketing report to submit clients.

    Employees

    1. This fraud ochre media company won’t leave they own employees as well. If any employee resigns from job ochre media won’t pay a salary for notice period more they push employee immediately out. It’s very tuff to get PF approved by this company.

    2. You can’t find a single person in this company who have knowledge of how digital marketing works even employees working over 6 years in the same company. This even stunned me when I joined this company.

    It doesn’t mean that Ochre media didn’t employ a person with the digital knowledge they did but so called senior employees drag them out. In my
    4 years service with them, a couple of employees came in and started changing things the way digital works but within 2 years they disappeared the same thing happened with content writters.

    There are many clients who are victims of this fraud company Ochre Media Pvt Ltd

    To get more information check out in complaint board. Below are some of the links where you can see employee and clients complains

    1. http://www.complaintboard.in/complaints-reviews/ochre-media-pvt-ltd-is-a-fraud-company-l72958.html

    2. http://www.consumercomplaints.in/bycompany/ochre-media-pvt-ltd-a169951.html

    3. http://usacomplaints.com/business-finance/726262-bisconn-media-complaints-reviews.html

    4. http://www.ripoffreport.com/r/Ochre-Media/internet/Ochre-Media-Number-1-fraud-compnay-Ochre-Media-Fraud-Hyderabad-Internet-1320604

  4. Ken Schoniger

    I believe that some engineers and scientists at the California Air Resources Board are manipulating data to favor electric utilities. where do I send the details?

  5. RC

    I believe an environmental firm is bilking the government for millions of dollars how do i request an investigation?

  6. Tracy Coenen

    Look up the agency that they have their contract with, and look for something like “inspector general” or reporting fraud. They should have some information available about who you would report that to.

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