fraud in the workplace david hammarberg, cpa, cfe, cissp, cisa, mcse [email protected]
TRANSCRIPT
Headlines
Cumberland County woman accused of stealing more than $82,000 from two businesses
Fairview Township Police say a 37-year-old Camp Hill woman who worked as a part-time bookkeeper for two companies in Lewisberry is accused of stealing more than $82,000 in tax money from the businesses.
Dauphin County township supervisor accused of theft – April 22, 2011
A member of the Conewago Township board of supervisors has been accused of stealing herbicides belonging to the township and using them on his property, according to court documents.
Headlines Ex-Lower Swatara Township tax collector charged with $224,000 theft – April
21, 2011 The Dauphin County District Attorney's Office has charged
former Lower Swatara Township Tax Collector Loretta Matz with stealing more than $224,000.
Trial ordered for former tax collector charged in theft of nearly $300,000 – February 10, 2011
A former elected tax collector accused of taking nearly $300,000 in public money for personal use is to go on trial in April in Cumberland County court.
Agenda
Fraud StatisticsFraud Triangle/ComponentsPreventive/Detective/Inadequate ControlsRed FlagsTop 16 Tips for Avoiding FraudFraud Check-up QuestionsQuestions?
Fraud Statistics The percentage of reported corporate frauds compared with all other
reported incidents increased to 20.3% in the first quarter of 2011. In over 25% of fraud cases losses exceed $1 million. (CFO.com)
Frauds can last for long periods of time and usually last at least 2 years before being detected
Frauds are more likely to be detected by a tip (50%) than by audits, controls, or other means… but controls are still important.
Fraud Statistics Fraudulent disbursements (as opposed to skimming or larceny) account
for 70 percent of cash misappropriations, averaging about $100,000 per occurrence.
Billing schemes, whereby a fraudster causes the victim organization to issue payments for fictitious, inflated or personal purchases, account for almost half of fraudulent disbursements. Also popular are payroll schemes, check tampering, and expense reimbursement schemes.
Most common red flags were individuals living beyond their means (39%) or experiencing financial difficulties (34%)
Typical perpetrator is a first time offender – only 7% had prior fraud conviction
Fraud Statistics Greater than two-thirds of frauds are committed by a single perpetrator.
Cash (as opposed to inventory, equipment or information) is the targeted asset in 90% of asset misappropriations.
Over 80 percent of occupational frauds involve asset misappropriation. Other forms of fraud involve financial statements (7%) and corruption schemes (13%).
Fraud Triangle
Motivation for FraudOpportunity
-- A perceived or actual opportunity to commit fraud-- A belief that no one will notice
Pressure
-- Personal debt-- Costly addictions such as gambling-- Unforeseen expenses
Rationalization-- I’ll pay it back-- Other people are doing it-- They don’t pay me enough
Preventive Controls
Fraud training for employees and managers
Segregation of duties
Employee support programs
Detective Controls
Fraud hotlines
Internal audit department
Independent audits
Inadequate Controls
Lack of segregation of duties
Minimal monitoring or oversight
Inadequate asset safeguards
Misunderstood controls
Controls that are easily overridden
Red FlagsWhat is a red flag?Often times red flags
were present in a situation but either not recognized or not acted upon.
Sometimes an error is just an error but you don’t know if you don’t investigate.
Red Flag ExamplesEmployee lifestyle
changesLiving beyond meansSignificant debt/credit
problemsBehavioral changes –
indication of drug, alcohol, gambling, family issues
High employee turnover in an area
Limited staff/lack of segregation of duties
Refusal to take vacation or sick leave
Control issues – unwilling to share duties
Complain about inadequate pay
Irritability and/or defensiveness
Weak internal controls
“Top 16 Tips for Avoiding Fraud” Internal Controls
1. Separate the duties of receiving funds, disbursing funds, writing checks, signing checks, and reconciling bank accounts. Having one employee responsible for all cash-related functions makes any small businesses vulnerable to fraud.
2. Have the monthly bank statement delivered unopened to the owner, who should review it for unusual transactions such as declining deposits and unfamiliar payees.
“Top 16 Tips for Avoiding Fraud” Internal Controls
3. Owners should look for signatures or endorsements that look forged, missing checks, check numbers that are out of order, and checks where the payee listed does not match the name in the check register.
4. Consider an independent review of the cash accounts and bank statements by a Certified Fraud Examiner (CFE).
“Top 16 Tips for Avoiding Fraud” Employment Conditions
5. Institute background checks on new employees, and notify job applicants that their backgrounds will be checked.
6. Employees who receive regular and recurring training about the detrimental aspects of fraud are more likely to aid in controlling it.
“Top 16 Tips for Avoiding Fraud” Employment Conditions
7. Employees who feel well-treated and adequately compensated are less likely to commit occupational fraud than those who don’t.
8. Employees who hold grudges against their employers—whether or not justified—are more likely turn to occupational fraud and abuse.
“Top 16 Tips for Avoiding Fraud” Workplace Conditions
9. Insist that employees take a vacation for at least one week every year and use that time to have the books reviewed for discrepancies.
10. Adopt a tip hotline or complaint-reporting mechanism that will enable employees, vendors, customers, or outside sources to report suspected fraud anonymously or without fear of reprisal.
“Top 16 Tips for Avoiding Fraud” Workplace Conditions
11. Employers can gain valuable information by simply asking questions in a non-threatening, non-accusatory manner.
12. Conduct internal and external audits, especially a “fraud audit” instead of a “general audit” if you suspect fraud.
“Top 16 Tips for Avoiding Fraud” Automation
13. Have an accounting software program expert, preferably a CPA, do the initial set-up of the program to make sure that helpful features are turned on and unhelpful features are turned off.
14. Access to personnel and vendor master file records should be password protected and restricted by job function.
“Top 16 Tips for Avoiding Fraud” Automation
15. Computer systems should create an audit trail of all changes made to the vendor master file records, including an identification of those who made the changes.
16. Changes to vendor master file records should require supporting documentation, supervisory approval, and independent review.
Fraud Check-up Questions Does your organization have a strong policy regarding fraud?
Are employees aware of the policy?
Does your organization adhere to the policy – i.e., prosecute individuals?
Does your organization perform effective background checks?
Are employees aware of their responsibility regarding identifying fraud?
Fraud Check-up QuestionsIs your organization aware of the significant fraud
risks that exists within their area?
Does the control environment promote both prevention and detection of fraudulent activity?
Is training related to fraud and/or the organization’s Code of Conduct performed periodically.
Fraud Resources
www.occ.treas.gov -Detecting Red Flags in Board Reports (2003)
www.acfe.com - Association of Certified Fraud Examiners
