PROTECTING FEDERAL PROGRAM FUNDS
Certifying Officers are liable for fraud and there is no statute of limitations.
George is a certifying officer who has not been exercising due diligence over the names on
the grants he has been certifying for the past 7 years. George’s work ethic is well known and
as such his designated payment processor Baldric and his first line reviewer Edmund have
a cunning plan to misappropriate hundreds of thousands of dollars by inserting their names
into payment vouchers for Urban Mass Transportation Administration grants. To facilitate this
deception, the payments required the inclusion of Baldric’s name and address in suburban
Maryland mixed in with 10 mass transportation agency name and address. During his “review”
George failed to notice Baldric’s name numerous times.
The fraud was discovered after Edmund having displayed an ostentatious lifestyle fled the
country, resulting in Baldric being arrested and numerous assets seized. After recovery
procedures including the seizure and sale of assets, resulted in an outstanding amount of
$500,000 with as only $500,000 of $1,000,000 was recovered. You may assume that the fraud
scheme has been ongoing for the past 5 years with 200,000 misappropriated per year.
Questions
Who is liable for the remainder?
(George)
Why is he liable?
(He did not exercise reasonable due diligence)
What were the internal control failures?
(Collusion between employees and control activity failure due to George’s lack
of due diligence)
If the fraud had used a false agency name and address such that a reasonable person could
not discern the difference between a legitimate mass transit agency and the fake one how
would the scenario have been different?
(The certifying officer could have stated that they exercised appropriate due diligence and
that they relied in good faith on the system of internal controls)
When does 3 year period start in this case?
(When the fraud was discovered)
Based on the above question, how much is he liable for?
($500,000, no statute of limitations when fraud is involved)
What is the likely response from GAO if he requests relief of liability?
(Denial of relief due to a lack of due diligence)
https://fiscal.treasury.gov/training/cot/documents/CaseStudy_1_StatuteLimitations.pdf