WHISTLEBLOWER’S ETHICAL JOURNEY...University of California April 9, 2019 Boston, Massachusetts Slides created by Amy Block Joy WHISTLEBLOWER’S ETHICAL JOURNEY A Real-Life Case

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HCCA COMPLIANCE CONFERENCE 2019

Amy Block Joy, PhDFaculty/Specialist Emeritus

University of California

April 9, 2019 Boston, Massachusetts

Slides created by Amy Block Joy

WHISTLEBLOWER’S ETHICAL JOURNEY

A Real-Life Case Study on the Discovery of Fraud, Investigative Success, the $2.3 Million Payback, and the Retaliatory Consequences

of Reporting Wrongdoing

Slide created by Amy Block Joy

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Disclaimers: Some Ideas to Keep in MindInformation summarized in the presentation includes published research, documents, articles,

interviews, and recollections.

The presenter is not an auditor, accountant, or attorney. The presenter is a scientist.

The presenter would like to acknowledge the many professionals who worked on this case, including: university internal auditors, investigators, campus police, and federal agents.

Events in this presentation are factual. Some names of those involved have been changed.

Viewpoints expressed in this presentation do not necessarily represent the official position of the University of California.


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Presentation Outline

1 – Discovery of fraud

2 – Reporting fraud

3 – Investigation

4 -- Retaliation

Slide created by Amy Bloc k Joy

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Part 1Discovery of Fraud

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Slide created by Amy Block Joy This Photo by Unknown Author is licensed under CC BY-ND

Background: University Career

Faculty (33 year academic) Scientist in the field of nutrition Director (statewide program) Federal funding ($14 million annual budget)


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Discovery

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Budget Error

$60K project budget Increased to $210K$150K error?Handwritten note


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ALARM!

Internal alarm leads to action

Check the office filesFiles were lockedWhere’s the key?


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Red File Folder Contains Evidence


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Purchase Order in Red File

Numerous Red Flags Inappropriate approval No separation of duties Vague description (Canon Optura 600) Expensive ($1400) Vender (Fry’s Electronics) Handwritten note (“Pick Up”)


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Moral DilemmaWhat is my responsibility?

As the director?As an employee?To the university?To the government?To the department chair?To the accused?


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Reporting Misconduct at the University

Policy dictates to report to supervisor

But what should one do if their supervisor doesn’t take action?


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Ask Questions


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This Photo by Unknown Author is licensed under CC BY-NC

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Chair’s Response to Wrongdoing

“No big deal” “Everyone does it” “You’re out of step” “People are complaining about you” “I thought she was your friend”


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This Photo by Unknown Author is licensed under CC BY-SA

Reporting Result

Silence: Nothing happens!And the evidence?


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What happens to the evidence?

Deposited into the Chair’s Personal Vault!


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Part 2Reporting Fraud


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Response of Supervisor: SILENCE

Misuse not taken seriously Refusal to report upward Protecting the accused Reporter threatened: Keep quiet or else! Disposition of evidence: Hide it!Action taken? None


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Response of Accused Employee appears contrite and works hard Employee takes responsibility Employee is monitored Employee follows the rules


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Is this enough?


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Monitoring Fails to Stop Accused Accused has staff member order purchaseAccused approves order Letter of warning issued Supervisory responsibility suspended


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This Photo by Unknown Author is licensed under CC BY-SA-NC

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A Tip from Staff Member


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Travel Fraud!

Fictitious travel allegation

$800 per month

Two plus years

Loss of $20,000


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Response of Supervisor

New department chair refuses to report upward


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Moral Outrage!


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Blow the Whistle!


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This Photo by Unknown Author is licensed under CC BY-ND

Whistleblower Report

Misuse of government propertyEmbezzlementTravel fraud

Slide by Amy Block Joy

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This Photo by Unknown Author is licensed under CC BY

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Part 3


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Investigative Questions

Who puts employee on leave? Who secures the evidence? Who interviews the witnesses? Who begins the investigation?


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This Photo by Unknown Author is licensed under CC BY-NC-ND

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Answers

Who puts employee on leave? THE WHISTLEBLOWER Who secures the evidence? THE WHISTLEBLOWER


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More Evidence in Red Folder!

During leave notification,the accused tried to take a file folder. She unlocked her desk drawer, took out a red folder, andput it in her box of personalbelongings.


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What was found?

FORGERY


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Problems in Securing the Evidence Forgery Embezzlement Travel fraud Letters of warning Confession Repayment check Taking responsibility email

No response by high level official at dean’s office!


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Retaliation!

Hours later: Office broken into and ransacked


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Part 4


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Waiting for the Investigation

Whistleblower waits and waits and waits for the dean to take action


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Whistleblower Under InvestigationRisk Associated with Reporting Wrongdoing

Dean serves whistleblower at home on a weekend Threatens: KEEP QUIET No safeguards for whistleblower Fraud investigation stalled


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Retaliation Questions Why was whistleblower falsely accused?

Why was no action taken after the whistle was blown?

Why is whistleblower under investigation without evidence?

Why did the accused’s report of misuse get more attention?

Why was the evidence not provided to the compliance professionals?


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This photo by Unknown Author is licensed under CC BY-SA

Internal Auditing Takes ActionWhistleblower meets with Internal Auditors Safe haven found Internal Auditors secure evidence Internal Auditors interview whistleblower Internal Auditors promptly investigates


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Multiple Investigations Campus Internal Auditing Campus Investigators Campus Police Special Agents from Office of the Inspector General (OIG)


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Warrant Served 300 invoices 100 travel vouchers Search warrant issued Home searched “Goods” located in garage $160,000 value


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Media Exposure Leads to More Retaliation

Petition to be removed from job False accusation of violence Car tire tampered Shoved by higher-up



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This Photo by Unknown Author is licensed under CC BY-NDThis Photo by Unknown Author is licensed under CC BY-SAThis Photo by Unknown Author is licensed under CC BY-NC-ND

Does Retaliation Stop?


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Safeguards Are NeededThe Ethics Resource Center (ERC) reports that over 21% of those who reported misconduct experienced retaliation*

This calculates to 6.2 million workers


* Sources: Ethics Resource Center Report: “When Whistleblowers Become Victims,” 2012; “inside the Mind of a Whistleblower.” 2013.

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Fraud Findings: $2.3 Million Payback to Government

Embezzlement of $160,000 substantiatedTravel fraud of $25,000 substantiatedFraudster pleads guilty (2008)Fraudster serves time in prison (2009)Misappropriation by chair ($150,000)*Undocumented time claim by chair ($400,000)Undocumented time claims from others ($1.544 million)

* $150K for ‘chair’ on budget spreadsheet for unapprovedresearch signed off by fraudster


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Evidence of Collusion Chair approved employee’s fake trips (254 trips = $25K)

Employee approved costly purchases for chair ($500K)

Employee approved payroll transfer for chair’s employees ($150K)


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Rationalizations Used by Fraudsters*

“No big deal – everyone does it”

“We are helping the organization”

“No one was hurt”

“The government is cheating us”

“No one’s paying attention to the controls”

“There’s widespread corruption in our organization”

* Free, C and PR Murphy. “The Ties that Bind: The Decision to Co-Offend in Fraud.” Contemporary Accounting Research 32(1):18-54, Spring 2015.

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Why Retaliate?

If fraud was conducted by one subordinate employee working alone there would be no reason to retaliate. Retaliation may be an indicator that higher-ups are involved.

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Involvement of Higher-Ups Failed to put accused on investigatory leave Failed to secure evidence of misuse of federal funds Failed to lock computer so that evidence cannot be destroyed Failed to report wrongdoing to compliance professionals Failed to report break-in to campus authorities

Failure to act after fraud report = Retaliation


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Steps to Take BEFORE, DURING and AFTER

BEFORE: TRAIN SUPERVISORS They need to know what action to take when receiving a report of wrongdoing

DURING: INVESTIGATE PROMPTLY The reporter needs to be protected

AFTER: COMMUNICATE FINDINGS Take correction action and update policy and protocols


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Ethics Matter!

Improves trust Improves employee morale Increases willingness to report Reduces misconduct


Source: Ethics Resource Center: 2009 Business Ethics Survey.

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Improve Institution Integrity by Preventing Retaliation

Retaliation is a predictable outcome Retaliation is a second form of misconductRetaliation is costly (resources and investigation time)Workplace ethics improves employee morale


Source: AB Joy, “Retaliation: A predictable and costly consequence of reporting wrongdoing.” Compliance & Ethics Professional (in press), April, 2019.

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RememberThe ethical culture of an institution is a

significant safeguard to protect employees from retaliation


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Thank [email protected]

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Documents

WHISTLEBLOWER’S ETHICAL JOURNEY...University of California April 9, 2019 Boston, Massachusetts Slides created by Amy Block Joy WHISTLEBLOWER’S ETHICAL JOURNEY A Real-Life Case