Industry expert, Todd Sarmiento unpacks the differences between the key issues of fraud, waste and corruption as it relates to grants and government funding.
What is Fraud?
The terms waste, abuse, mismanagement, and corruption are commonly thought to have the same meaning as fraud. While there are similarities, there are also some important differences to be aware of.
The Government Accountability Office defines fraud as an attempt to “obtain something of value through willful misrepresentation.” Black’s Law Dictionary defines fraud as “some deceitful practice or willful device, resorted to with the intent to deprive another of his right, or in some manner to do him an injury.”
How does Fraud Differ from Waste, Abuse, Mismanagement and Corruption?
The GAO defines Waste as “squandering money or resources, even if not explicitly illegal.” It is also thought of as careless management practices.
The GAO defines Abuse as “behaving improperly or unreasonably, or misusing one’s position or authority.” Black’s Law Dictionary defines Abuse of Power as “When someone becomes too manipulative [acts to attain selfish ends by disregarding other’s aspirations] with … the trust given to them.”
The GAO defines Mismanagement as “creating a substantial risk to an agency’s [or company, organization, or department] ability to accomplish its mission”.
Black’s Law Dictionary defines Corruption as “Illegality; a vicious and fraudulent intention to evade the prohibitions of the law. The act of an official or fiduciary person who unlawfully and wrongfully uses his station or character to procure some benefit for himself or for another person, contrary to duty and the rights of others. (source:)
In comparison, fraud and corruption are willful and intentional illegal acts. Waste, Abuse of power, and Mismanagement may be willful or unintentional. Acts of waste, abuse of power, and mismanagement detrimental to the rights and objectives of another individual or organization and may warrant significant consequences, such as removal from office, but they may not be illegal.
Why we care:
It is a Grant Award Recipient’s Responsibility
Incidents of fraud, waste, abuse, mismanagement, and corruption all erode public trust in government. Accordingly, the Federal Government expects federal grant award recipients to protect the interests of the taxpayers from whom the funding was derived. This includes understanding the inherent fraud risks within their industry and areas of responsibility. Additionally, it is incumbent upon them to design and implement appropriate systems of internal controls to detect and prevent fraud, corruption, and other forms of wrongdoing. Failure to do so puts current and future grant funding at risk.
Incident Rates & Economic Impacts
Grant award recipients operate in industries with some of the highest rates of fraud. The industry rankings, based on the Association of Certified Fraud Examiners’ 2020 Report to the Nations, are as follows:
# 2 – Government/Public Administration; median loss of $100,000.
# 9 – Construction; median loss of $200,000,
#14 – Professional Services; median loss of $150,000.
The ACFE 2020 Report to the Nations was derived from the ACFE 2019 Global Fraud Survey, which identified 2,504 fraud cases from 125 countries, and losses totaling more than $3.6 billion.
It is important to note that median loss in the construction industry is twice that of Government/Public Admin and Banking/Financial Services. (Banking/Financial Services ranks as #1 in number of fraud cases.)
It’s a Matter of National Security
The Biden Administration issued a “Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest” on June 3, 2021.
# Corruption corrodes public trust in government
# The financial costs are staggering, with estimates that corruption costs between 2 and 5 percent of global GDP
# Corruption threatens US national security; this memorandum serves to establish that countering corruption is a core national security interest of the United States
# Directs government officials to conduct an interagency review process and develop a Presidential strategy that will promote good governance and combat all forms of corruption
# Directs that an interagency review be completed, and a report submitted with recommendations within 200 days of this Memorandum to the President.