A federal jury convicted former U.S. Rep. Rick Renzi (R-Ariz.) on more than a half dozen corruption charges accusing him of using his office for personal financial gain and looting a family insurance business to help pay for his 2002 campaign, The Washington Post reports.
The indictment charged that while in office in 2005, Renzi held hostage possible parcel swaps involving public land proposed as the site for an Arizona copper mine unless it included purchasing private land owned by a former Renzi business associate. According to the indictment, an investment group agreed to pay US $4.6 million for the associate's land, and the associate then paid Renzi US $733,000 for his help. Renzi also was indicted for embezzling more than US $400,000 in premiums from his family insurance business to fund his 2002 campaign for Congress. He currently awaits sentencing.
Internal auditors should look beyond the ostensibly political nature of this case to understand the many forms financial fraud and corruption can take in both public and private organizations. Some ways auditors can transfer the insights gained from this case to detect other kinds of financial fraud include:
Looking for warning signs such as unusually close relationships with friends and past and current business associates. Thorough background checks can reveal past business transactions that point to a potential conflict of interest or a monetarily advantageous situation. Time delays and other deviations from expected behaviors in decision making, particularly involving large financial transactions, may be a sign of fraudulent activity. As demonstrated by the public land swap element of the Renzi case, unusual conditions and related payments to these friends and associates may be another warning sign.
Ensuring adequate controls are in place to define and set expectations for appropriate behaviors. The rules around conduct of personal versus organizational business may not be sufficiently established, clear, or assessed from a compliance perspective. Internationally, there is a wide range of controls and regulations in place concerning what types of personal business and potential financial gain is permitted by public officials. In Canada, for example, politicians are required to place their personal and business assets and activities into a blind trust to prevent various forms of conflict of interest situations — particularly a personal gain arising from political decision-making. Because it is not always possible to establish such stringent controls, auditors should consider how they can help organizations assess the state of play via fraud risk assessments, audit plans, and related audit engagements.
Seeking out the root cause or source by "following the money." Whether for purposes of expense reimbursement or public transparency, most organizations require evidence of financial transactions (e.g., contributions and spending). But the sharp auditor also will ask whether the controls and rules are comprehensive, clear, and verifiable.
Additional considerations include verifying the appropriateness of the purpose of the funds contributed and spent and, in cases involving public funds, requiring more detailed public disclosure of funding sources and attestation of the eligibility criteria for receiving public funding.