small business fraud presentation
TRANSCRIPT
The Detection and Prevention of Fraud ( Or The Company You Save
May Be Your Own)Dennis L. Thompson, CPA,CFE
www.dlthompsoncpa.com
Christine Sylvester
Windish RV - Colorado
•40 Year Old Billing Clerk•Embezzled $951k•Fraud Lasted Three Years•Created a Shell Company
– Wrote duplicate checks– Deposited into Shell Business Account
•Plead guilty to felony theft•Sentenced to 5 years
Desiree Herrera
Payless Hardware-California• 36 Year Accounts Receivable Clerk
– Worked from 2002 to 2009– Embezzled $1.43 Million
• Skimmed Receivables– Handled bank deposits– Laundered money
• Convicted on 58 Felony Counts– 1 count of grand theft– 3 counts of filing fraudulent tax returns– Sentenced to 10 years– Husband sentenced to 1 year for money
laundering
Victoria Monfore
IP Koki Printing, Oregon
• 48 Year Old Bookkeeper– Worked from 1992 to 2008– Embezzled $1.5 Million– Forged Checks
• Printing Company Closed– 74 lost jobs
• Convicted on 58 Felony Counts– Aggravated 1st degree theft– 18 Counts Identity Theft– Received 23.5 years
Fraud Triangle – Donald Cressey
• Opportunity
• Pressure
• Rationalization
Opportunity
• Trusted Employee
• Necessary Skills
• Weak Internal Controls
Pressure – Non-sharable Problems• Living beyond Means
• Gambling Losses
• Medical Expenses
Rationalizations
• Just Borrowing
• Employer is Unfair
• Unique Circumstances
Asset Misappropriations – Most Common• Cash
• Inventory/Other Assets
Cash Receipts
• On Book
– Larceny
• Off Book
– Skimming
Fraudulent Cash Disbursements
• Billing Schemes
• Payroll Schemes
• Expense Reimbursements
• Check Tampering
Billing Schemes
• Shell Company– Employee sets up fictitious Vendor– Service companies are harder to detect– Money deposited in Employee’s account– Starbucks Example
• How to Detect– Review Vendor lists, esp those with P.O.
Box– Compare Vendor address with Employee
address
Payroll Schemes
• Falsified Hours– Forge Supervisor’s Signature
• Ghost Employees– Employees that have quit or fictitious
• Detecting– Require Supervisor to monitor– Supervisor hands out paychecks– H/R monitor employee records
• Expense Reimbursements– Personal Expenses– Multiple Reimbursements– Fictitious Reimbursements
• Dectecting & Preventing– Supervisor Review– Only Original Documents
Expense Reimbursments
Check Tampering• Forged Maker
– Fraudster forges check signature– Use of check signing machine
• Forged Endorsement– Fraudster steals third party check
• Altered Payee• Authorized Maker
– Signs checks for personal expenses
• Deterrence & Detection – Review Returned check from Bank– Restrict access to check signature
machine– Look for signs of tampering on original
check– Restrict access to blank checks
Check Tampering
Detection of Fraud Schemes
• Initial Detection of Occupational Frauds
Prevention & Detection of Fraud
• Internal Control• Reconcile All GL Accounts • Accounting Software Controls• Ratio Analysis• Digital Analysis• Tip Lines• Other Considerations
Internal Control
• Segregation of Duties– Do Not Allow One Person To Have
Recorded Keeping Responsibility And Physical Custody of Asset
Account Reconciliation
• Bank– Segregation of Duties– Timely– Bank Statement Mailed to Owner
• Credit Card– Review for Charges
Accounting Software Controls
• Roles and Passwords to Limit Access
• Review Audit Log
• Lock Prior Periods
Ratio Analysis
• Look For Unreasonable Relationships– Income going up – Expenses going down
Digital Analysis – Benfords’ Law
Tip Lines
• Most Effective
• Confidential
• No Penalty For Good Faith Reporting
Other Considerations
• Be Suspicious of Employees
– First to Arrive, Last to Leave
– Never Want to Take a Vacation
– Changes in Lifestyle Not Supported by Salary
– Takes Work Home
I Think I am Being Ripped Off – Now What?• Proceed with Caution
– Review Employee Policies– Talk to Your Attorney– Do you have a Fraud Policy in place?– Open Confidential Investigation
• Investigation/Development– Document, Document, Document– Don’t try to detain employee-False
Imprisonment– Avoid Defamation & Slander
I Think I am Being Ripped Off – Now What?• Invasion of Privacy by Employer
– Ways to Reduce Liability• Employee Handbook• Written Company Policy
• Should Company Prosecute?– Does Fraudster have Resources?– Time, Money & Energy to Build Case– Convincing Law Enforcement
My Fraud Prevention Services
• Review of Company Internal Controls• Audit My Books
– Software that tests for Accounts Payable Errors & Fraud
• Analytical Procedures• Digital Analysis – Benford’s Law• Bill.com – Paperless Accounts Payable
Summary
• Fraud Increasing, Especially In This Economy
• Adversely Impacts Company’s Survival & Employee Jobs
• No Stereotypical Fraudster – Sometimes Someone You Would Never Suspect
• Much More Economical to Prevent Fraud
Dennis L. Thompson, CPA, CFE
206-390-9432 www.dlthompsoncpa.com
ResourcesAuditMyBooks Bloghttp://auditmybooks.com/blog
Fraud Info Blog/http://fraudinfo.com
Fraud Talkhttp://fraudtalk.blogspot.com/
White Collar Fraudhttp://whitecollarfraud.blogspot.com/