Fraud prevention begins with understanding how specific schemes operate and applying targeted internal controls to detect or deter them. Control mapping aligns fraud risks, such as payroll, procurement, and travel fraud, with precise mechanisms that reduce exposure and support compliance with federal regulations.
Key Insights
- Payroll fraud schemes, including ghost employees and inflated time reporting, require preventative controls like segregation of duties and detective controls such as payroll reconciliations and certifications per 2 CFR 200.430.
- Procurement fraud, such as bid rigging and kickbacks, can be mitigated through controls like conflict of interest disclosures, procurement logs, and verification procedures outlined in 2 CFR 200.317–327.
- Travel and programmatic fraud often involve falsified documentation and inflated outcomes, which can be addressed through supervisor approvals, independent verification, and cross-referencing programmatic and financial reports.
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Control mapping means connecting specific fraud schemes to exact controls that prevent or detect them. This is a skill seasoned auditors and ID investigators master, and it's a skill we want you to develop. Let's dive deeper into each scheme.
Payroll fraud, ghost employees. Payroll fraud is one of the costliest schemes and is often hidden in plain sight. Illicit manifestations of this fraud include ghost employees, unauthorized pay increases, inflated overtime, and time and effort abuse.
Under 2 CFR 200 section 430, payroll costs must be supported by records, accurately reflect work performed, comply with internal controls, and be verified periodically. Controls to map here, preventative, segregation of duties in HR and payroll, detective, time and effort, certifications, and payroll reconciliations. I've seen real cases where a ghost employee was actually a brother of the program manager.
The name was legitimate, the social security number belonged to a deceased person, and the payments went to a mailbox controlled by the Controls would have caught it early. Programmatic fraud, such as kickbacks and bid rigging. Procurement fraud is addressed in 2 CFR 200 in the procurement standards section, sections 317 to 327.
Common manifestations include bid rigging, split purchases, side payments, favoritism, and collusion with vendors. Controls include conflict of interest disclosures, bidding documentation, cost price analysis, cross-functional approval, procurement logs, and vendor vetting using SAM.gov. One of my DOE clients quit a kickback scheme only because programmatic logs did not match email trails. This mismatch was the first thread that unraveled a larger procurement scheme.
Travel and expense fraud can manifest as fake receipts. Personal travel disguises business, double-billing, and inflated expenses. Control methods include travel policies, required agendas, receipts validated, mileage verification, supervisor approval, and sampling.
Travel fraud thrives when reviews are rushed. Programmatic fraud. This includes inflated outcomes, fabricated services, participant fabrication, and falsified success stories.
The controls include site visits, independent verification, standardized documentation, and crosswalking financial and programmatic reports. Mapping these controls helps staff see why behind the procedures. This slide introduces an exercise that strengthens analytical skills.
Let's walk through the framing. Here's the exercise breakdown. You will review scenarios that mirror real-world fraud situations.
The tasks involve identifying the fraud scheme. Is it payroll, procurement, travel, performance, or cash management? Then you're going to map the internal control that would have prevented or detected it. You must point to a specific control, not a vague concept.
Then you have to explain the rationale. We recommend X control because it addresses Y vulnerability. Examples of a strong response for scenario A. A staff member processes vendor payments and also approves them.
Fraud scheme. Opportunity for self-billing or unauthorized payments. The control mapping.
Segregation of duties. Approval must be separated from processing. The rationale.
This prevents one individual from executing and authorizing the same transaction. This type of thinking is exactly what federal auditors do. So why does this exercise matter? Fraud is rarely detected by chance.
It is detected because someone knows what fraud looks like, where it hides, and what controls stop it. And this exercise builds upon those skills.