A variety of situations may be considered fraud, waste, or abuse in State government operations. The following are definitions and common examples: Show FraudA dishonest and deliberate course of action that results in obtaining money, property, or an advantage to which a State employee or an official committing the action would not normally be entitled. Fraud is also intentional misleading or deceitful conduct that deprives the State of its resources or rights. A mere mistake or error generally will not constitute fraud unless made with negligent disregard for the truth. There are three categories of fraud: financial statement fraud, misappropriation of assets, and corruption. Examples:
WasteThe needless, careless, or extravagant expenditure of State funds, incurring of unnecessary expenses, or mismanagement of State resources or property. Waste does not necessarily involve private use or personal gain but likely signifies poor management decisions, practices, or controls. Examples:
AbuseThe intentional, wrongful, or improper use or destruction of State resources or seriously improper practice that does not involve prosecutable fraud. Abuse can include the excessive or improper use of an employee’s or official’s position in a manner other than its rightful or legal use. Examples:
Financial Statement FraudIntentional misstatements, omissions, or disclosures in financial statements designed to deceive financial statement users. Fraudulent financial reporting often involves management override of controls that otherwise may appear to be operating effectively. Common examples include overstating revenues and understating liabilities or expenses. Examples:
Misappropriation of AssetsThe theft of an entity’s assets that causes the financial statements not to be presented in conformity with generally accepted accounting principles. Misappropriation of assets can involve false or misleading records or documents, possibly created by circumventing controls that may accompany misappropriation of assets. Examples:
CorruptionEmployees or officials wrongfully using their influence in a business transaction to procure some benefit for themselves or another person, contrary to their duty to their employer or the rights of another. Examples:
The most widely accepted explanation for why some people commit fraud is known as the Fraud Triangle. The Fraud Triangle was developed by Dr. Donald Cressey, a criminologist whose research on embezzlers produced the term “trust violators.” The Fraud Triangle hypothesizes that if all three components are present — unshareable financial need, perceived opportunity and rationalization — a person is highly likely to pursue fraudulent activities. As Dr. Cressey explains in the the Fraud Examiners Manual: |