fraud prevention and detection - chapters site · 2017. 11. 19. · fraud risk management...

Fraud Prevention and Detection

Lisa deWit, Sr Project Manager (3-5631) Formation Review 20 Oct 17 Prepared for: IIA Annual Fraud Seminar

Opening Remarks

• Fraud - what is it?

• Fraud Risk Management

• Fraud Prevention in DND

• Understanding the pressure/motive

• What do you do in face of wrongdoing?

BRIBERY Inappropriate Use of Customer Data

ID THEFT EMBEZZLEMENT PONZI SCHEME

SKIMMING Inventory Theft SCRAP THEFT

• Fraudulent Financial Reporting

• Employee Theft Ghost Employees

• Misdirection of funds TAX SCHEME

• CORRUPTION Fictitious Sales

• Misappropriation Conflicts of Interest

• Forgery Concealed Liabilities

•

Fraud Definition

Everyone who by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of the Act, defrauds the public or any other person whether ascertained or not, of any property, money or valuable security or any service, is guilty of fraud.

- Criminal Code, Section 380

Occupational Fraud Facts

• Organizations lose an estimated 5% of annual revenue to fraud

• Median loss 150K

• Avg 18 months before detected

• 1/5 of incidents has losses at least 1M

source: ACFE 2016 Report to the Nations on Occupational Fraud and Abuse

Fraud Risk Management Principles

As a part of the governance structure, a fraud risk policy should be in place, including a written policy to convey expectations of senior management in managing fraud risk.

Governance DAOD 7025-0

Assessment

Prevention

Detection

Investigative

Fraud risk exposure should be assessed by the organization to identify potential schemes and events that the organization needs to mitigate

Prevention techniques to avoid fraud risk events should be established, where feasible, to mitigate possible impacts on the organization.

Detection techniques should be established to uncover fraud events when preventative measures fail or unmitigated risks are realized.

A reporting process should be in place to solicit input on potential fraud, and a coordinated approach to investigation and corrective action should be used to help ensure potential fraud is addressed appropriately and timely.

source: PRA Group IIA National Conference 2010

Incidents in DND

• falsified claims

• forgery

• theft of food, supplies, materials

• “borrowing money”

Halifax Herald News 18 Apr 13

Canadian military police allege that five people, three of whom are employees of a DND office at 12 Wing Shearwater, bilked the military of $ 915, 409.14 (file)

Headline Halifax Herald News 18 Apr 13:

Military Investigation Reveals 1M Fraud Scheme

Current investigation into alleged fraud at 12 Wing Shearwater

Five people created shell companies to bid on Shearwater Heating contracts

Contract split - kept it to under 5K limit

Occurred over four years

Identified by a compliance staff reported potentially fraudulent activity to supervisors.

Examination of quotes revealed same handwriting on all the documents supposedly from numerous companies.

(http://thechronicleherald.ca/metro/1124015-military-investigation-reveals-1m-fraud) scheme#.UXmorcakdV5.email

Champagne Wishes

He stole $100 million, lived like a king. Then it all fell apart.

source: Macleans article by Steve Maich July 2, 2009

Champagne wishes He stole $100 million, and lived like a king. Then it all fell apart. by Steve Maich on Thursday, July 2, 2009 9:20am

• 2009 Macleans Magazine Article

• 100 Million Dollar Fraud

• Embezzled through phony invoicing scam

• Ran it for almost a decade (1992 - 2003)

• Billed DND for computer support service contracts never provided

• GOV sought 146M refund

Profile of a Fraudster

• Can’t pick them out of a crowd

• Over half at between ages 31 - 45

• Most had never had a previous record

• Only 5.2% had previous convictions

• Mixed male 73% and female 27% mngrs

• source: ACFE 2016 Survey

The Perpetrator’s Dept

• Accounting (17%)

• Operations (15%)

• Sales (12%)

• Executive/ Upper Mngmnt (11%)

• Customer Service (9%)

• Purchasing (7%) Source: ACFE 2016 Survey

Elements of Fraud

•Pressure/Motive

•Rationalization

•Opportunity

Warning Signs and Red Flags

Most Common behavioural red flags demonstrated by perpetrators:

- living beyond one’s means (44%)

- experiencing financial difficulty ( 38%)

Source: ACFE 2016 Survey

Behavioural Warnings • Unusually close association with

vendor/customer (22%)

• Control issues: unwillingness to share duties (21%)

• “Wheeler-dealer” attitude (18%)

• Divorce/family problems (17%)

• Irritability, suspiciousness or defensiveness (15%)

• Addiction problems (12%)

• Refusal to take vacations (9%) source: ACFE 2016

Survey

Pressure/Motive Examples

• getting kids through college

• helping aged parent through medical crisis

• keeping up with associates

• setback in economy

• bonus linked to performance or sales

source: Fraud Related Interviewing Don Rabon

What Can You Do?

Thank you

Lisa deWit Formation Review

250-363-5631 ldewitiia@gmail.com