steering clear of fraud
DESCRIPTION
Steering Clear of Fraud. Stop Me When You Think We Have A Problem. Director of Accounting Received cash Made bank deposits Received and approved vendor invoices Wrote checks Posted G/L Payroll Reconciled bank accounts Custodian of records. Lifestyle. Modest income: Two homes Boat - PowerPoint PPT PresentationTRANSCRIPT
Steering Clear of Fraud
John L. Tonsick, CPA, CFE 213-716-0667
Stop Me When You Think We Have A Problem
• Director of Accounting– Received cash– Made bank deposits– Received and approved
vendor invoices– Wrote checks– Posted G/L– Payroll– Reconciled bank accounts– Custodian of records
John L. Tonsick, CPA, CFE 213-716-0667
Lifestyle
Modest income:
• Two homes
• Boat
• New car every 2 years
• Season baseball tickets
• Vacations
• Gambling
John L. Tonsick, CPA, CFE 213-716-0667
Auditors?
John L. Tonsick, CPA, CFE 213-716-0667
What Happened?
Stole more than $500,000 over 2 years
• Traveler’s checks• Corporate credit card• Cash receipts
John L. Tonsick, CPA, CFE 213-716-0667
How it was concealed?
• Fraudulent journal entries
• Altered bank deposits• Altered credit card
statements• Bank reconciliations
– Manipulated outstanding checks
– Altered bank statements
John L. Tonsick, CPA, CFE 213-716-0667
John L. Tonsick, CPA, CFE 213-716-0667
Fraud Statistics
• 5% of GDP lost to employee fraud & abuse• $652 billion annually• Median loss $159,000 • Nearly one in four caused losses in excess of $1 MM
Source: Association of Certified Fraud Examiners' Report to the Nation.
John L. Tonsick, CPA, CFE 213-716-0667
Fraud Statistics
• Men perpetrate 61% of fraud• Men cause losses more than twice those caused by
women• Median loss from fraud by employees making
$50,000/year or less is $75,000• Median loss from fraud by employees making
$500,000/year or more is $8 Million
Source: Association of Certified Fraud Examiners' Report to the Nation
John L. Tonsick, CPA, CFE 213-716-0667
Fraud Statistics
• Median losses caused by those 25 or younger are $25,000
• Median losses caused by those over 60 are $713,000• Perpetrators with post-graduate degrees cause losses
more than twice those of perpetrators with only undergraduate degrees
• Multiple perpetrators cause median losses of $485,000; nearly five times higher than perpetrators acting alone
Source: Association of Certified Fraud Examiners' Report to the Nation
John L. Tonsick, CPA, CFE 213-716-0667
How Fraud Happens
1. Asset Misappropriation: 92%.
2. Corruption – Bribery, Kick-backs, illegal gratuities, conflicts of interest: 31%.
3. Fraudulent Statements: 11%.
John L. Tonsick, CPA, CFE213-716-0667
Why Fraud Happens
• Immediate Need
• Opportunity
• Ability to Rationalize
John L. Tonsick, CPA, CFE213-716-0667
Immediate Need
Un-sharable Problem
• Living beyond one’s means• Drugs, alcohol, gambling• Romantic involvement• Financial emergency
John L. Tonsick, CPA, CFE213-716-0667
Opportunity
• Trust
• Weak Internal Controls– Lax oversight– Power to override
controls
John L. Tonsick, CPA, CFE213-716-0667
“Ability to Rationalize”
• “Everybody else is doing it”• “The company owes me”• “It’s just a loan, I’ll pay it back”• “The rules don’t apply to me”
John L. Tonsick, CPA, CFE 213-716-0667
“Red Flags of Fraud
• Lifestyle issues– Sex, drugs, rock & roll
• Performance that’s too good to be true
• Employees who never take vacation
John L. Tonsick, CPA, CFE 213-716-0667
“Red Flags” of Fraud
• Poor accounting records• Missing documents• Photocopies• Excessive adjustments• Increased write-offs• Customer/employee complaints• Related party transactions• General ledger doesn’t balance
John L. Tonsick, CPA, CFE 213-716-0667
Tools and Techniques
To Minimize Fraud Risk
John L. Tonsick, CPA, CFE 213-716-0667
# 1 - Expect Fraud
It cannot be eliminated; only managed!
John L. Tonsick, CPA, CFE 213-716-0667
# 2 - Know Your Business
John L. Tonsick, CPA, CFE 213-716-0667
# 3 – Know Your Employees
• Over 30% of resumes contain false statements
John L. Tonsick, CPA, CFE 213-716-0667
# 4 – Look For Fraud
John L. Tonsick, CPA, CFE 213-716-0667
# 5 – Recognize Limitations of Internal Controls
• Controls break down• Circumstances change
John L. Tonsick, CPA, CFE 213-716-0667
5 Things You Can Do Tomorrow
1. Compare A/P file to payroll fileCommon addresses
Bank account numbers
2. Review vendor master fileVendors without street addresses
Illogical addresses
Similar names
3. Review expense reports
4. Re-perform bank reconciliations
5. Re-perform subsidiary to G/L reconciliations
John L. Tonsick, CPA, CFE 213-716-0667
John Tonsick CPA, CFERisk Solutions & Investigations811 Wilshire Blvd., Suite 1650
Los Angeles, CA 90017email: [email protected]: www.Tonsick.com
213-716-0667