FRAUD AWARENESS & PREVENTION

Transcription

1 FRAUD AWARENESS & PREVENTION Nancy Wonderlich Koonce, CPA/MBA/CVA/CFE

2 What is occupational fraud? The use of one s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization s resources or assets. 2

3 Fraud Statistics: 6% of revenues will be lost due to fraud Estimated at $660 billion annually in the United States $4,500 per employee Small businesses are the most vulnerable Average scheme for small companies (under 100 employees) costs $98,000 in losses 45.8% of frauds reported were from small companies 3

4 Fraud Statistics: 7.9% of occupational frauds involve fraudulent financial statements Median loss is over $1 million per scheme 30% of occupational frauds involve corruption. They cause over $250,000 in losses on average 92.7% of occupational frauds involve asset misappropriations. Cash is targeted asset 93.4% of the time Median loss is $93,000 4

5 Fraud Statistics Breakdown of cash misappropriations: 74.1% were fraudulent disbursements Median loss of $125, % were skimming Median loss of $85, % were cash larceny Median loss of $80,000 5

6 Fraud Statistics: Frauds committed by employees cause median losses of $62,000 Frauds committed by managers cause median losses of $140,000 Frauds committed by owners/executives cause median losses of $900,000 6

7 Fraud Statistics: The typical occupational fraud perpetrator has been employed by the victim organization for over 6 years. The average fraud scheme lasts 18 months before detection. Losses caused by perpetrators older than 60 are 27 times higher than losses caused by employees 25 and younger. 7

8 Key Elements of Fraud: The activity is clandestine; The perpetrator violates his fiduciary duty to the victim organization; It is committed for the purpose of direct or indirect financial benefit to the perpetrator; and It costs the employing organization assets, revenue or reserves. 8

9 The Fraud Triangle: Motive Opportunity Rationalization 9

10 Typical Cash Misappropriation Schemes: Skimming Unrecorded sales Understated sales Theft of payments received in the mail 10

11 Typical Cash Misappropriation Schemes: Cash Larceny Theft of cash from register Deposit lapping Deposits in transit 11

12 Typical Cash Misappropriation Schemes Fraudulent disbursement: Billing schemes Check tampering schemes Expense reimbursement schemes Payroll schemes Register disbursement schemes 12

13 Typical Cash Misappropriation Schemes: Billing schemes Shell companies Pass-through schemes Accomplice vendors (collusion) Pay-and-return schemes Personal purchases 13

14 Typical Cash Misappropriation Schemes: Check tampering Forged maker schemes Forged endorsement schemes Altered Payee Schemes 14

15 Typical Cash Misappropriation Schemes: Expense reimbursement schemes Mischaracterized expenses Overstated expense reports Fictitious expenses Multiple reimbursements 15

16 Typical Cash Misappropriation Schemes: Payroll schemes Ghost employees Falsified hours and/or salary Commission schemes Workers compensation 16

17 Typical Cash Misappropriation Schemes: Register disbursement schemes: False refunds Overstated refunds Credit card refunds False voids 17

18 Warning Signs: Skimming Decreasing cash to total current assets A decreasing ratio of cash to credit card sales Flat or declining sales with increasing cost of sales Increasing accounts receivable compared with cash Delayed posting of accounts receivable payments 18

19 Warning Signs: Cash Larceny Unexplained cash discrepancies Altered or forged deposit slips Customer billing and payment complaints Rising in transit deposits during bank reconciliations 19

20 Warning Signs: Fraudulent disbursements Increasing soft expenses (consulting, advertising, etc.) Employee home address matches a vendor s address Vendor s address is P.O. Box or mail drop Vendor name consists of initials or vague business purpose Excessive voided, missing or destroyed checks 20

21 Warning Signs: Others Unexplained reduction in net income Unexplained employee wealth Employees who don t take vacations and always seem to be at work even when others are not Employees with credit problems Confusing, missing or jumbled records Always behind Need to take books home 21

22 Prevention: Currently, the most common method for detecting fraud is a tip from an employee, customer, vendor or anonymous source. Second most common method for small businesses is by accident. 90% of frauds can be prevented with appropriate and enforced internal controls. 22

23 Prevention: Skimming Receipt or sales level controls Check conversion controls General controls Segregation of duties 23

24 Prevention: Cash larceny Segregation of duties Mandatory vacations Assignment rotation Surprise cash counts and procedure supervision Physical security of cash 24

25 Prevention: Billing schemes Segregation of duties Competitive bidding Proper documentation and approvals 25

26 Prevention: Check tampering Segregation of duties Check disbursement controls Mandatory vacations Physical tampering prevention Check theft controls 26

27 Prevention: Expense schemes Detailed expense reports Require original receipts Periodic reviews 27

28 Prevention: Payroll fraud Segregation of duties Periodic review and analysis of payroll Personal distribution of paychecks 28

29 Prevention: Register disbursement schemes Segregation of duties Monitor register access and secure access codes Supervisor presence Review supporting documentation 29

30 Prevention: Other good ideas Put policies and procedures in writing Establish and follow a written code of conduct Implement or subscribe to a Hotline Do background and reference checks prior to employment Conduct fraud prevention checkups and examinations 30

31 If You Suspect Fraud: Don t make any assumptions Get a professional to investigate Don t be afraid to prosecute or file suit 31

32 NANCY WONDERLICH KOONCE, CPA/MBA/CVA/CFE Leforgee, Braga & Donnelley 864 Filer Avenue Twin Falls, ID