# Fraud, waste, and abuse: the risk triangle in public institutions
In 2019, New York City's Department of Education discovered a payroll secretary had been paying a "cafeteria worker" who did not exist for over a decade, pocketing more than $500,000 (estimate, based on reported case figures). The employee existed only on paper: a ghost, kept alive by one person who controlled hiring forms, timesheets, and payroll approval, all at once. No system flagged it. No auditor caught it. The city's own internal controls simply had a hole exactly the shape of this scheme.
This is the story of most public sector fraud: not criminal masterminds, but ordinary control gaps meeting ordinary human pressure.
Fraud examiners use a simple model called the fraud triangle (developed by criminologist Donald Cressey): fraud happens when three elements combine.
Private-sector fraud often centers on personal greed or bonus targets. Public sector fraud has its own flavors:
A ghost employee is a person on the payroll who doesn't work, or doesn't exist. It requires someone with control over both the personnel roster and payment authorization, exactly the segregation-of-duties failure regulators warn about. The US Government Accountability Office and the EU's European Anti-Fraud Office (OLAF) both flag payroll as a top vulnerability in decentralized public administrations.
Control check: cross-reference the HR headcount list against payroll disbursement records monthly, and require a manager who did *not* create the employee record to certify their existence (a physical sighting, biometric check-in, or independent verification call).
Bid-rigging is when competitors secretly coordinate to fix the outcome of a supposedly competitive tender, rather than compete for a public contract. It's illegal under US antitrust law (enforced by the Department of Justice Antitrust Division) and EU competition law (Article 101 TFEU, enforced by the European Commission).
A construction firm colludes with two "competitors" to submit deliberately high or losing bids, letting the real bidder win at an inflated price, then splitting the margin. The World Bank's <a href="https://www.worldbank.org/en/about/unit/integrity-vice-presidency" target="_blank">Integrity Vice Presidency</a> has documented dozens of these schemes in infrastructure lending.
Red flags: bids clustered suspiciously close in price, the same firms always losing to the same winner, identical typos or formatting across "competing" bids, and unusually low bidder turnover in a region.
Same invoice, submitted (accidentally or deliberately) twice, or paid to a vendor that exists only in the accounts payable system. This thrives where invoice-matching is manual and vendor master files aren't reconciled.
Control check: three-way matching, comparing the purchase order, the goods-receipt confirmation, and the invoice, before any payment clears. This is standard private-sector practice that many government finance offices still do only partially.
Public financial integrity rests on a patchwork of laws and bodies:
A basic duplicate-payment screen finance teams run in Excel or SQLSQLSales Qualified Lead: a prospect the sales team has validated as ready for direct outreach and a proposal, having passed clear qualification criteria.View full definition →:
SELECT vendor_id, invoice_amount, invoice_date, COUNT(*) AS occurrences
FROM accounts_payable
GROUP BY vendor_id, invoice_amount, invoice_date
HAVING COUNT(*) > 1;This flags identical vendor, amount, and date combinations appearing more than once, the classic signature of a duplicate submission or a data-entry error worth investigating. It's not proof of fraud, but it's a five-minute first filter any analyst should run before a payment cycle closes.
Knowledge check
1. According to the fraud triangle model, what is the primary role of 'opportunity' in enabling fraud?
2. The ghost employee scheme in the NYC case was possible mainly because one person controlled multiple stages of a process. Which control principle was violated?
3. A public agency manager rushes to spend the remaining budget before year-end to avoid losing unspent funds next cycle. Within the fraud triangle framework, this dynamic is best classified as an example of which element?
4. Select ALL correct answers about how public sector fraud pressures typically differ from private sector fraud pressures.
Select all the correct answers.
5. Select ALL correct answers about factors that increase 'opportunity' for fraud in public institutions.
Select all the correct answers.
If you're evaluating a public program, grant recipient, or vendor relationship, four checks matter most:
1. Segregation of duties map: who can create a vendor, who can approve a payment, who can reconcile the bank statement? If one person can do two of these, that's a gap.
2. Procurement competition analysis: how many distinct bidders won contracts over the past three years? Concentration is a signal, not proof.
3. Whistleblower channel existence and usage: does the agency have a functioning hotline, and does it show a plausible number of tips (zero tips over five years is itself a red flag)?
4. Audit trail completeness: can every payment be traced back to an authorized purchase order and a receipt of goods or services?
None of these require forensic accounting training. They are the same due-diligence questions a private-sector CFO asks before approving a supplier contract, applied to public money.