Fraud Risk on the Rise: Why Government and Higher Ed Finances Are Vulnerable to Errors

You might assume that when it comes to making sound choices to keep their organizations running smoothly and on budget, financial decision makers are making those choices based on clear data and their confidence in that data. As it turns out, that might not always be an accurate assumption.

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Higher educationState and local agencies

A recent survey conducted by SAP Concur and Kelton Global found that 59% of financial decision makers working in state, city, and local government and higher education believe the financial tools and systems used at their organizations are error-prone, and 68% report having to make decisions without full visibility into the necessary information. Not only that, but many of these leaders admit that fraud, waste, and abuse are challenges their organizations currently face – and that their vulnerability to these types of risks is on the rise:

• Two-thirds of respondents admit that fraud, waste and abuse are challenges their organization currently faces.
• More than one in four say their vulnerability to risk of fraud and abuse increased in the past year.
• About one-third say the number of inaccurate expense reports and invoices that have been submitted has increased over the past year.

Inaccurate decision-making – unintentional or not – leads to risk

The truth is, it’s happened to the best of us. We can all likely recall a time when we’ve made a decision without having the necessary background information by which to make it, and that decision may not have produced the most favorable results. Why? Because in order to make sound business decisions and avoid unfortunate errors, we need access to all the optimal information so we’re not operating blindly.

The reputational damage of ill-informed decision-making can be catastrophic for a public sector organization – potentially leading to decreased funding as well as decreased trust. A recent study by the Association of Certified Fraud Examiners (ACFE) identified the top fraud expenses for business and government organizations incur, including:

• 5 percent of a typical organization’s annual revenues are lost due to fraud 
• 89 percent of fraud cases involve asset misappropriation, including padding travel and expense claims
• $114,000 is the annual median loss from asset misappropriation

Despite these threats, many state, city, and local government and higher education decision makers are faced with these challenges every day. About one-quarter of survey respondents say their organization has unintentionally reported incorrect budget data due to inaccuracies in expense reports or invoices – and, 26% say their organization unintentionally allocated resources where it shouldn’t have due to thinking it had more available budget than it actually did.

For higher education organizations, these types of errors can have direct and negative effects on its students, like when the University of Texas at Tyler recently found its calculations off for full-ride four-year fellowships. More were granted than were actually in the plan, and the University responded by revoking between 50 and 60 such scholarships, long after students had accepted at UT Tyler and other colleges’ deadlines had expired. Many admissions leaders viewed these actions as unethical, and students took to social media to share their unfortunate stories.

The reputational risks endured by UT Tyler are just one example of why accuracy, visibility and compliance are of utmost importance for any organization.

Fighting fraud and achieving compliance with a balance of AI and employee engagement

For those working in the public sector, not complying with government rules and regulations is not an option. The good news is there are many small ways in which these organizations can start chipping away at this issue – including better employee training, stricter regulation of internal processes, and closer collaboration with CIOs. In fact, government and higher education organizations are implementing a variety of initiatives to remain current.

According to the survey, around two-thirds (69%) have tasked their employees to learn about this information or regularly conduct audits (65%) to gather the most current regulatory information. More than half also look beyond the walls of their organization – specifically to peers in the public sector – to find best practices for abiding by regulatory compliance.

At the same time, putting technologies in place that can simultaneously automate tedious and error-prone processes like auditing expense and invoice data, but learn and become more efficient over time, is the most effective long-term strategy.

I’ve touted the benefits of automation before but take it from those on the front lines: The majority (55%) of survey respondents who have fully automated tools for expense, invoice, or travel management at various stages of implementation say their organization is better at managing fraud, waste, and abuse within their organizations.

Further still, those who have completely automated the invoice process are about twice as likely (39% vs. 21%) as those who have not to say there have been fewer errors in these reports. Pima Community College in Tucson, Arizona is a great example of a higher education institution that’s reaped the benefits of automation. Its process for handling travel, expense, and invoices used to be highly manual, with paper-based requests and reimbursements being the norm. You can imagine the potential margin of error with this approach. By bringing in new technology and automating audit rules, Pima reduced errors and compliance violations and in-turn increased policy adherence.

More about the survey

Kelton Global’s study gathered responses from 313 financial decision makers working in state, city, and local government and higher education to learn more about how these organizations are reducing risk, maintaining compliance and maximizing efficiency – what’s working well, what others might learn from what some organizations are doing, and where applying new systems and processes could solve for time and accuracy issues.