fraud risk management & coso: past, present & .fraud risk management & coso: past, present & future

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  • DaveCo(on,CPA,CFE,CGFMCo(on&Company,LLPAlexandria,Virginia

    dco$on@co$oncpa.com

    Fraud Risk Management & COSO: Past, Present & Future

    WinterSeminar19January2017

  • DAVIDL.COTTON,CPA,CFE,CGFMCOTTON&COMPANYLLPCHAIRMAN

    DaveCottonischairmanofCotton&CompanyLLP,CertifiedPublicAccountants,headquarteredinAlexandria,Virginia.Thefirmwasfoundedin1981andhasapracticeconcentrationinassistingFederalandStategovernmentagencies,inspectorsgeneral,andgovernmentgranteesandcontractorswithavarietyofgovernmentprogram-relatedassuranceandadvisoryservices.Cotton&Companyhasperformedgrantandcontract,indirectcostrate,financialstatement,financialrelated,andperformanceauditsformorethantwodozenFederalinspectorsgeneralaswellasnumerousotherFederalandStateagenciesandprograms.Cotton&CompanysFederalagencyauditclientshaveincludedtheU.S.GovernmentAccountabilityOffice,U.S.Navy,U.S.MarineCorps,U.S.HouseofRepresentatives,U.S.CapitolPolice,U.S.SmallBusinessAdministration,U.S.BureauofPrisons,MillenniumChallengeCorporation,U.S.MarshalsService,andBureauofAlcohol,Tobacco,FirearmsandExplosives.Cotton&CompanyalsoassistsnumerousFederalagenciesinpreparingfinancialstatementsandimprovingfinancialmanagement,accounting,andinternalcontrolsystems.DavereceivedaBSinmechanicalengineering(1971)andanMBAinmanagementscienceandlaborrelations(1972)fromLehighUniversityinBethlehem,PA.HealsopursuedgraduatestudiesinaccountingandauditingattheUniversityofChicagoGraduateSchoolofBusiness(1977to1978).HeisaCertifiedPublicAccountant(CPA),CertifiedFraudExaminer(CFE),andCertifiedGovernmentFinancialManager(CGFM).DaveservedontheAdvisoryCouncilonGovernmentAuditingStandards(theCounciladvisestheUnitedStatesComptrollerGeneralonpromulgationofGovernmentAuditingStandardsGAOsyellowbook)from2006to2009.HeservedontheInstituteofInternalAuditors(IIA)Anti-FraudProgramsandControlsTaskForceandco-authoredManagingtheBusinessRiskofFraud:APracticalGuide.HeservedontheAmericanInstituteofCPAsAnti-FraudTaskForceandco-authoredManagementOverride:TheAchillesHeelofFraudPrevention.Daveisthepast-chairoftheAICPAFederalAccountingandAuditingSubcommitteeandhasservedontheAICPAGovernmentalAccountingandAuditingCommitteeandtheGovernmentTechnicalStandardsSubcommitteeoftheAICPAProfes-sionalEthicsExecutiveCommittee.DavechairedtheFraudRiskManagementTaskForce,sponsoredbyCOSOandACFEandisaprincipalauthoroftheCOSO-ACFEFraudRiskManagementGuide.HeispresentlyservingontheAICPAsPerformanceAuditStandardsTaskForce.DaveservedontheboardoftheVirginiaSocietyofCertifiedPublicAccountants(VSCPA)andontheVSCPALitigationServicesCommittee,ProfessionalEthicsCommittee,QualityReviewCommittee,andGovernmentalAccountingandAuditingCommittee.HeisamemberoftheAssociationofGovernmentAccountants(AGA)andpast-advisoryboardchairmanandpast-presidentoftheAGANorthernVirginiaChapter.HeisalsoamemberoftheInstituteofInternalAuditorsandtheAssociationofCertifiedFraudExaminers.

    Davehastestifiedasanexpertingovernmentalaccounting,auditing,andfraudissuesbeforetheUnitedStatesCourtofFederalClaimsandotheradministrativeandjudicialbodies.Davehasspokenfrequentlyoncostaccounting,professionalethics,andauditorsfrauddetectionresponsibilitiesunderSAS99,ConsiderationofFraudinaFinancialStatementAudit.HehasbeenaninstructorfortheGeorgeWashingtonUniversitymastersofaccountancyprogram(FraudExaminationandForensicAccounting),andhasinstructedfortheGeorgeMasonUniversitySmallBusinessDevelopmentCenter(FundamentalsofAccountingforGovernmentContracts).DavewastherecipientoftheAGAs2006BarrAward(torecognizethecumulativeachievementsofprivatesectorindividualswhothroughouttheircareershaveservedasarolemodelforothersandwhohaveconsistentlyexhibitedthehighestpersonalandprofessionalstandards)aswellasAGAs2012EducatorAward(torecognizeindividualswhohavemadesignificantcontributionstotheeducationandtrainingofgovernmentfinancialmanagers).

  • dco$on@co$oncpa.com 1

    WinterSeminar19January2017

    Plan for This Session

    Fraud Happens ACFE Fraud Statistics Anti-Fraud Guidance Managing the Business Risk of Fraud COSO Update and Assessing Fraud Risk COSO-ACFE Task Force GAO Green Book and Assessing Fraud Risk GAOs Fraud Risk Management Framework

    Fraud Happens

  • dco$on@co$oncpa.com 2

    WinterSeminar19January2017

    Billy-Bob

    Is fantastic Has been with us for years Does ALL of the accounting stuff so that we can focus on more important things Works long hours and many weekends Never takes a vacation Works for very modest pay and never asks for a raise (we think he inherited some money/retired after a successful career in some other field) Has turned down offers to work elsewhere for more money because he believes in our mission

    Mary-Lou

    Is fantastic and totally dedicated to our mission Has been our executive director since our founding We wouldnt be where we are today without her Is a hands-on and no nonsense executive and makes all of the important decisions Works long hours and most weekends Never takes a vacation Knows everyone on the board and personally recommended each one Makes board service easy, because she really runs the organization with an iron hand

  • dco$on@co$oncpa.com 3

    WinterSeminar19January2017

    Fraud Happens

    Four words precede EVERY fraud:

    Eight words follow EVERY fraud:

    5

    The Talented AGA Member from Tennessee

    Case Study

  • dco$on@co$oncpa.com 4

    WinterSeminar19January2017

    The Talented AGA Member from Tennessee

    Jeffrey Wayne Hughes, CGFM, CFE, MBA

    Case Study

    The Talented AGA Member from Tennessee Jeffrey Wayne Hughes has an impressive resume ! BBA, Human Resources Management & Accounting, 2005, Univ. of

    Northern Alabama

    ! MBA, Management, 2008, Univ. of Northern Alabama

    ! Auditor II, Tennessee Comptroller of the Treasury, Mar 2006 - Feb 2010

    ! Regional Accountant, TN Dept. of Health, Feb 2010 Sep 2010

    ! Chairman of the Board, A Kids Place Child Advocacy Center, Jul 2014 Mar 2016

    ! Lawrence County (TN) Commissioner, Sep 2014 Mar 2016

    ! State of Tennessee Fiscal Director, Sep 2012 Apr 2016

    ! Customer Service Representative, Amazon, Jun 2016 Jul 2016

    Case Study

  • dco$on@co$oncpa.com 5

    WinterSeminar19January2017

    The Talented AGA Member from Tennessee Jeff Hughes was a rising star at AGA

    Case Study

  • dco$on@co$oncpa.com 6

    WinterSeminar19January2017

    The Talented AGA Member from Tennessee Jeff Hughes was, until recently, seeking new employment

    Case Study

  • dco$on@co$oncpa.com 7

    WinterSeminar19January2017

    The Talented AGA Member from Tennessee Jeffreys life changed abruptly in April 2016

    Case Study

    Source: http://www.wsmv.com/story/31738666/former-lawrence-co-commissioner-indicted-on-theft-forgery-charges

    The Talented AGA Member from Tennessee Jeffreys life changed abruptly in April 2016

    Case Study

    Source: http://www.wsmv.com/story/31738666/former-lawrence-co-commissioner-indicted-on-theft-forgery-charges

  • dco$on@co$oncpa.com 8

    WinterSeminar19January2017

    The Talented AGA Member from Tennessee Case Study

    Source: http://www.lawrenceburgnow.com/120516former.html

    Case Study

  • dco$on@co$oncpa.com 9

    WinterSeminar19January2017

    According to the Comptrollers Investigation " Lawrence County Fire and Rescue operates as an umbrella

    organization to facilitate the operations of the 13 volunteer fire departments in Lawrence County, including Crossroads VFD.

    Case Study

    " Hughes served as treasurer for both Lawrence County Fire and Rescue and for the Crossroads VFD

    " Hughes misappropriated at least $254,266 by issuing unauthorized fire and rescue checks for his personal benefit

    According to the Comptrollers Investigation " Hughes:

    ! Wrote more than 80 checks payable to cash totaling over $188,679

    ! Wrote more than 80 checks totaling $42,491 to Walmart to purchase gift cards

    ! Made other improper withdrawals totaling $12,651

    ! Funneled $10,445 from the LCF&R account to the Crossroads VFD account, then diverted those funds for his personal use

    ! Misappropriated at least $10,800 from Crossroads VFD

    Case Study

  • dco$on@co$oncpa.com 10

    WinterSeminar19January2017

    According to the Comptrollers Investigation Case Study

    According to the Comptrollers Investigation

    " LCF&R officers indicated that their signatures on the unauthorized checks were not authentic

    " The LCF&R board did not approve and was not aware of the fraudulent activity

    Case Study

  • dco$on@co$oncpa.com 11

    WinterSeminar19January2017

    Case Study

    FRAUD

    opportunity

    Motive Pressure

    Attitude rationalization

    The Talented AGA Member from Tennessee

    Case Study

    Fraud risk factors/indicators

    The Talented AGA Member from Tennessee

  • dco$on@co$oncpa.com 12

    WinterSeminar19January2017

    According to the Comptrollers Investigation Case Study

    The Talented and Tragic AGA Member from Tennessee

    Case Study

  • dco$on@co$oncpa.com 13

    WinterSeminar19January2017

    TheEmbezzelingAuditor

    Case Study

    TheEmbezzelingAuditor

    RobinA.Howard

    Case Study

  • dco$on@co$oncpa.com 14

    WinterSeminar19January2017

    TheEmbezzelingAuditor

    # BSAccoun>ng,HawaiiPacificUniversity(1997)# MBABusiness/Accoun>ng,TroyStateUniversity# Manager,InternalAudit,WashingtonMetropolitanArea

    TransitAuthority,2002-2006# Manager,MorganFranklinCorp.,2006-2007# ChiefAuditExecu>ve,PrinceWilliamCounty,2008-1012# AuditorGeneral,MetropolitanAtlantaRapidTrans

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