Stephen F. Austin State University

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Fraud (C-46)

Original Implementation:  Replaces Reporting Fiscal Misconduct Policy C-46 implemented January 28, 1997
Last Revision: October 30, 2007

INTRODUCTION

This policy establishes procedures and responsibilities for detecting, reporting and resolving instances of known or suspected fraudulent activity. The intent of the policy is to protect the assets and interests of the university, prescribe a coordinated approach toward investigation and resolution of fraudulent activity and outline specific responsibilities for individuals responding to the investigation of a fraudulent activity. Retaliation for filing a good faith report regarding suspected fraudulent activity is prohibited by this policy, and is cause for disciplinary action, up to and including termination.

A) University - Stephen F. Austin State University and all of its components, regardless of the source of funding.

B) Employee - All persons receiving compensation from the university, including faculty, staff, and students.  The term also includes any volunteer who provides services to the university through an official arrangement with the university or a university organization.

C) Management - Any administrator, manager, account holder, director, supervisor or other individual who manages or supervises funds, assets or other resources, including human resources.

D) Fraud - Fraud is defined as a representation usually of fact about a material point which is intentionally, knowingly or recklessly false which is believed and acted upon by a victim to the victim's damage. 

E) Fraudulent Activities/Fiscal Misconduct - Defalcation, misappropriation, and other fiscal irregularities or improprieties meeting the definition of fraud in D) above including but not limited to:

  1) dishonest, illegal, or fraudulent acts involving university property

  2) forgery or alteration of documents including checks, drafts, promissory notes, securities, purchase orders, budgets, etc.

  3) forgery or unauthorized alteration by employees of employee benefit or salary-related items such as time sheets, payroll documents, billings, claims, surrenders, assignments, or changes in beneficiary

  4) forgery or unauthorized alteration by employees of student related items such as grades, transcripts, loans, fees, financial aid applications, financial aid records

  5) misappropriation of funds, securities, supplies, or any other asset of the university

  6) illegal or fraudulent handling or reporting of money transactions

  7) employee acceptance or solicitation of any gift, favor, or service that might reasonably tend to influence the employee in the discharge of his or her official duties

  8) theft, destruction or disappearance of records, furniture, fixtures, equipment or other records or assets

  9)  misrepresentation of information on documents

10) authorizing or receiving payment for goods not received or services not performed

11)  knowing, reckless, or intentional inaccuracies in the maintenance of  books and records or irregularities in financial reporting

12) any apparent violation of federal, state or local laws related to dishonest activities or fraud

13) any similar or related activity.

F) Suspected Fraudulent Activity - A reasonable belief or actual knowledge that fraudulent activity has or is occurring. Failure to show an actual diversion of assets or loss shall not be considered unreasonable belief.

 

MANAGEMENT RESPONSIBILITY

Management is responsible for detecting fraudulent or related dishonest activity in their areas of responsibility.  Management is responsible for establishing and maintaining a system of internal control that provides reasonable assurance that improprieties are prevented and detected. Each manager should be familiar with the types of improprieties that might occur in his or her area and be alert for any indication that such a defalcation, misappropriation, or other fiscal irregularity has occurred.  When an impropriety is suspected, management should determine if an error or mistake has occurred or if there may be dishonest or fraudulent activity.

Management will support the university's fiduciary responsibilities and will cooperate with auditors and law enforcement agencies in the detection, investigation, and reporting of criminal acts, including prosecution of offenders. Every effort should be made to recover university losses.

 

REPORTING SUSPECTED IMPROPRIETY OR FRAUDULENT ACTIVITY

Any employee of the university who knows of or suspects fraudulent activity or improprieties must promptly notify his or her immediate supervisor and/or one of the following investigative units: the Department of Audit Services, the Office of General Counsel, the University Police Department or the Department of Human Resources. The unit contacted shall contact the remaining three units as appropriate to establish the necessary investigative team and procedures.

Great care must be taken in the reporting and investigation of suspected improprieties or irregularities to avoid incorrect accusations or alerting suspected individuals that an investigation or audit is underway and also to avoid making statements which could provide a basis for a lawsuit for false accusation or other offense. The reporting individual should not:

1) contact the suspected individual to determine facts or demand restitution; or

2) discuss the facts, suspicions, or allegations associated with the case with anyone, unless specifically directed to do so by the Department of Audit Services, University Police, or Office of the General Counsel.

To the extent permitted by the applicable provisions of the Texas Open Records Act, confidentiality of those reporting dishonest or fraudulent activities will be maintained. However, the confidentiality cannot be maintained if that individual is required to serve as a witness in legal proceedings.

The university will maintain an anonymous reporting system through the Department of Audit Services for reporting dishonest or fraudulent activity.

 

INVESTIGATION

Prior to conducting an investigation, the following personnel will communicate as appropriate to establish the necessary investigative team:  general counsel, director of audit services, university chief of police, and director of human resources. 

The Department of Audit Services will supervise all audits of allegations of defalcation, misappropriation, and other fiscal irregularities.   The Department of Audit services will have full and unrestricted access to all necessary records and personnel.  All university furniture and contents, including desks and computers, are open to inspection when there is reasonable suspicion of a dishonest or fraudulent activity which makes such inspection appropriate; there is no assumption of privacy.  General counsel shall be contacted before inspection of desks and computers beyond inadvertent or official access.  Every effort should be made to effect recovery of university losses. 

All affected departments and/or individuals shall cooperate fully with the investigative team to identify whether or not actual fraudulent activity has occurred.

The investigative team shall update university administration of the progress of all investigations. The scope of and individuals subject to investigations are to be considered in determining the extent and nature of notification.

The results of all investigations will be reported to the president of the university or to the chair of the regent's Finance and Audit Committee when considered necessary.

When an audit reveals suspected criminal activity, or an audit is initiated due to an allegation of criminal activity, the university police chief will be notified immediately and the audit will proceed under his direction.   In order to avoid the use of investigative techniques that might prevent evidence from being used in a criminal prosecution, university chief of police will coordinate the criminal investigation once probable criminal activity has been detected. The Department of Audit Services shall assist the university police in investigations of suspected defalcation, misappropriation, and other fiscal irregularities that require accounting and auditing knowledge of university records.

When an audit involves allegations or reveals suspected criminal activity which may constitute a felony offense, the chief of police shall, when appropriate, immediately notify the president or his designee. The director of audit services shall keep the university chief of police informed regarding the progress of the audit.

The university police, Department of Audit Services, and Office of the General Counsel will coordinate assistance provided to state, federal, and local law enforcement agencies in connection with felony fraud investigations. All requests for information and/or assistance from such agencies, received by any other component of the university, shall be immediately forwarded to the university police for determination and handling. All reasonable assistance will be given to law enforcement agencies when requested.

All requests for information and assistance related to investigations conducted by auditors of federal and state agencies, which are concerned with potential dishonest or fraudulent activities within the university, shall be forwarded immediately to the director of audit services for consultation with the Office of General Counsel.

In order to protect the reputations of innocent persons initially suspected of wrongful conduct and to protect the university from potential civil liability, the results of investigations and attendant audits will not be disclosed or discussed with anyone other than authorized representatives of law enforcement and/or regulatory agencies and only those persons associated with the university who have a legitimate need to know such results in order to perform their duties and responsibilities, subject to provisions of the Texas Open Records Act.

Pursuant to Section 321.022 of the Texas Government Code, the president shall file an appropriate report with the Office of the State Auditor. All records of a communication by or to the state auditor in this regard are legally considered audit working papers of the state auditor.

Audits revealing violations of the Penal Code for which an audit report will be issued shall be reduced to final report form only after consultation by university police with the local prosecutor or the Office of General Counsel to ensure that appropriate documentation of the facts has been achieved in order to permit appropriate personnel action, protect innocent persons, support appropriate civil or criminal actions, document claims made pursuant to applicable fidelity bonds, preserve the integrity of criminal investigation and prosecution and avoid unnecessary litigation.

All inquiries from the suspected individual, their representative or their attorney shall be directed to the Office of General Counsel without further comment.

All reproduction of documents, evidence, and reports shall be performed within the secured work area of the university police or Office of Audit Services. Any requests to release or review such documents will be coordinated through the Office of the General Counsel.

When an audit initiated due to an allegation of criminal activity has failed to detect criminal activity or when advised by the Office of General Counsel, the director of audit services has the discretion to stop the audit. The Office of University Police retains authority to review the progress of criminal investigations and to determine whether to pursue a criminal prosecution.

 

AUDIT FINDINGS

Each investigation of possible dishonest or fraudulent activities has the potential to provide valuable insight into university activities. Investigations may disclose control weaknesses or other deficiencies that require additional auditing or attention by management. The Office of Audit Services shall consider the nature and extent of the investigation and complete any additional audit work necessary to provide management with information for appropriate action.

 

Cross Reference: Employee Conduct (E-15), Ethics Policy (E-56), Discipline and Discharge (E-11), Section 321.022 of the Texas Government Code

Responsible for Implementation: President

Contact for Revision: Vice President for Finance and Administration

Forms: None