fraud: what’s new tammy michaud, cpa and ......click to edit master text styles fraud: what’s...
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![Page 1: FRAUD: WHAT’S NEW TAMMY MICHAUD, CPA AND ......CLICK TO EDIT MASTER TEXT STYLES FRAUD: WHAT’S NEW AND WHAT TO DO ABOUT IT TAMMY MICHAUD, CPA Principal ROB SMALLEY, CPA, CFE Senior](https://reader034.vdocuments.site/reader034/viewer/2022042204/5ea5f49d551c1260b453e03b/html5/thumbnails/1.jpg)
CLICK TO EDIT MASTER TEXT STYLES
FRAUD: WHAT’S NEW AND WHAT TO DO ABOUT IT
TAMMY MICHAUD, CPAPrincipal
ROB SMALLEY, CPA, CFESenior Manager
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CLICK TO EDIT MASTER TEXT STYLESAGENDA
• Types of Internal Fraud• Who are these people?• Association of Certified Fraud
Examiners (ACFE) – 2018 Report to the Nations
• Fraud Triangle
• Internal Controls to Address Fraud Risks
• Information and Communication• Monitoring• Story Time!• Resources
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CLICK TO EDIT MASTER TEXT STYLESTYPES OF FRAUD
INTERNAL FRAUD
• Corruption• Financial statement fraud• Asset misappropriation
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CLICK TO EDIT MASTER TEXT STYLESTRUST
WHO ARE THESE PEOPLE?
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CLICK TO EDIT MASTER TEXT STYLESACFE REPORT TO THE NATION
Fraudsters were generally Male
53% of the fraudsters were
between the ages 31 and 45
50% worked at the organization
Less than 5 years
• United States had the most even distribution between males and females: men accounted for 58% of frauds, and women were responsible for 42%.
• 53% of the fraudsters were between the ages 31 and 45. Over 60% of fraudsters have a college degree.
• 53% worked at the organization less than 5 years, but the losses increase dramatically with increased tenure.
SURVEY SAYs …
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CLICK TO EDIT MASTER TEXT STYLESPERPETRATOR’S AGE
How does the perpetrator’s age relate to occupational fraud?
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CLICK TO EDIT MASTER TEXT STYLESPERPETRATOR’S EDUCATION LEVEL
How does the perpetrator’s education level relate to occupational fraud?
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CLICK TO EDIT MASTER TEXT STYLESPERPETRATOR’S TENURE
How does the perpetrator’s tenure relate to occupational fraud?
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CLICK TO EDIT MASTER TEXT STYLESPERPETRATOR’S CRIMINAL BACKGROUND
Do perpetrators tend to have prior fraud convictions?
9
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CLICK TO EDIT MASTER TEXT STYLESACFE REPORT TO THE NATION
Median loss for all cases was
$114,000
Asset misappropriation occurred in
89% of cases
Median duration of the frauds was
16 months
• Asset misappropriation by far the most common form of fraud
• Among various forms of asset misappropriation, BILLING SCHEMES and CHECK TAMPERING posed the greatest risk based on relative frequency and median loss
• Most common concealment methods were creating and altering physical documents
SURVEY SAYs …
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CLICK TO EDIT MASTER TEXT STYLESACFE REPORT TO THE NATION
42%Telephone hotlines
26%Email
23%Web-based or online form
SMALL ORGANIZATIONS• Checking tampering, skimming,
payroll, and cash larceny schemes are twice as likely
• Significantly lower implementation rate of anti-fraud controls than large organizations
• Fraud losses were 50% smaller at organizations with hotlines than those without
SURVEY SAYS … COMMON REPORTING METHODS IN CASES DETECTED BY TIP
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CLICK TO EDIT MASTER TEXT STYLESACFE REPORT TO THE NATION
DETECTION OF FRAUD SCHEMESFraud Detection Methods
How is occupational fraud initially detected?
40%
15%
13%
7%
6%
5%
4%
4%
3%
2%
1%
1%
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CLICK TO EDIT MASTER TEXT STYLESSOURCE OF TIPS
Who reports occupational fraud?
Anonymous14%
Customer21%
Employee53%
Vendor 8%
Other5%
Competitor3%
Shareholder/owner2%
Internal source
Externalsource Other
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CLICK TO EDIT MASTER TEXT STYLESACFE REPORT TO THE NATION
The presence of ANTI-FRAUD CONTROLS was correlated with lower fraud losses and more rapid detection.
More frauds occurred in the ACCOUNTING DEPARTMENT than any other business unit.
ANTI-FRAUD CONTROLS
ACCOUNTING DEPARTMENT
Most occupational fraudsters are FIRST-TIME OFFENDERS.
FIRST-TIME OFFENDERS
Victim organizations decided not to refer their fraud cases to law enforcement due to FEAR OF BAD PUBLICITY in 38% of cases.
FEAR OF BAD PUBLICITY
SURVEY SAYs …
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CLICK TO EDIT MASTER TEXT STYLESFRAUD TRIANGLE
WHY IS FRAUD COMMITTED?
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CLICK TO EDIT MASTER TEXT STYLES
DEVELOP INTERNAL CONTROLS TO ADDRESS FRAUD RISKS
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CLICK TO EDIT MASTER TEXT STYLESInternal Controls
WHAT ARE INTERNAL CONTROLS?A process for assuring achievement of an organization’s objectives for:
• Operational effectiveness and efficiency• Reliable financial reporting• Compliance with laws,
regulations, and policies
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CLICK TO EDIT MASTER TEXT STYLESTHE PROCESS
1 2
Set the foundation
with a strong control
environment
Perform a risk
assessment
3 4 5
Develop and implement
control activities
Communicate pertinent
information
Monitorthe internal
control system
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CLICK TO EDIT MASTER TEXT STYLESCONTROL ENVIRONMENT
• Competency• Ethics• Responsibility• Management’s philosophy• Tone at the top• Human resources• Authority
• Integrity• Values• Staff development• Management’s operating style• BOD attention• BOD direction
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• Brainstorm – no wrong answers• Participation from all areas of your organization• Rank the risks• Revisit annually
ASSESSMENT
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CLICK TO EDIT MASTER TEXT STYLESRISK RANKING
RISK LIKELIHOOD TO OCCUR IMPACT OF RISK OVERALL RISK
RATING
Financial Security Operational
Lowlikelihood:
1
Lowimpact:
1
Lowimpact:
1
Low impact: 1
Low overall risk:4 - 5
Medium likelihood:
2
Medium impact:
2
Medium impact:
2
Medium impact:
2
Medium overall risk:6 - 8
Highlikelihood:
3
Highimpact:
3
Highimpact:
3
Highimpact:
3
High overall risk:9 - 12
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CLICK TO EDIT MASTER TEXT STYLESCONTROL ACTIVITIES
• Authorization• Security• Locks• Verification• Review• Approval• Reconciliation• Segregation of duties
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CLICK TO EDIT MASTER TEXT STYLESSOME KEY INTERNAL CONTROLS
• Cash receipts • Cash disbursements• Bank account
reconciliation• Segregation of duties
• Maintain a master vendor list along with appropriate segregation of duties
• Small business –owner should review/sign all check disbursements
• Only receive electronic customer payments or through a lockbox
• Ensure bad debt charge-offs are appropriate
• Segregation of duties between posting sales/receipts and reconcilement
• Review general ledger posting detail for AR
CASH ACCOUNTS PAYABLE
ACCOUNTS PAYABLE
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CLICK TO EDIT MASTER TEXT STYLESSOME KEY INTERNAL CONTROLS
PAYROLL• Segregate duties between payroll
setup and approval • Non-HR employee within senior
management should review and sign off on payroll change reports
• Payroll vendor reports should be received directly from someone outside the payroll function
• Payroll should be reconciled to the general ledger with a separate individual reviewing
JOURNAL ENTRIES• All manual journal entries should be
reviewed by someone not capable of posting entries
• Ensure manual journal entry support is retained
BUDGET VS. ACTUAL• Maintain a budget; track against
actual results monthly• Set scopes and expectations to
ensure a quality review
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CLICK TO EDIT MASTER TEXT STYLESAN ONGOING PROCESS
Evaluate control
environment
Monitor
Perform risk
assessment
Implement controls
Communicate
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CLICK TO EDIT MASTER TEXT STYLESSTORY TIME
N.H. Businessman sentenced in
theft case
$150 million settlement
announced in VT ski resort fraud case
Administrator at Pre-School
Stole from Parent’s
Accounts
Former president of charity stole
$3.8M, lawsuit alleges
Farmington Woman Sentenced to 30 Months in Prison for Mail Fraud and Filing False Tax Returns
Our View: Massive embezzlement from small Maine town should bewake-up call
Former Westbrook employee accused of embezzling $118,000
Piermont Woman Accused of Embezzling
From Employer
Bridgewater Cornerswoman sentenced for
embezzlement
Authorities: Bar Owner Embezzled $168,000
Intended for Charities
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CLICK TO EDIT MASTER TEXT STYLESDETERRENCE?
How often is litigation pursued against occupational fraud perpetrators?
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RESOURCEACFE 2018 Report to the Nationshttp://www.acfe.com/report-to-the-nations/2018/
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CLICK TO EDIT MASTER TEXT STYLESCONTACT US
TAMMY MICHAUD, CPAPrincipal
ROB SMALLEY, CPA, CFESenior Manager