Fraud Prevention and Detection. Lisa dewit, Sr Project Manager (3-5631) Formation Review 20 Oct 17 Prepared for: IIA Annual Fraud Seminar

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1 Fraud Prevention and Detection Lisa dewit, Sr Project Manager (3-5631) Formation Review 20 Oct 17 Prepared for: IIA Annual Fraud Seminar

2 Opening Remarks Fraud - what is it? Fraud Risk Management Fraud Prevention in DND Understanding the pressure/motive What do you do in face of wrongdoing?

3 BRIBERY Inappropriate Use of Customer Data Fraudulent Financial Reporting ID THEFT EMBEZZLEMENT PONZI SCHEME Employee Theft Ghost SKIMMING Inventory Theft SCRAP THEFT Employees Misdirection of funds TAX SCHEME CORRUPTION Misappropriation Fictitious Sales Conflicts of Interest Forgery Concealed Liabilities

4 Fraud Definition Everyone who by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of the Act, defrauds the public or any other person whether ascertained or not, of any property, money or valuable security or any service, is guilty of fraud. Section Criminal Code,

5 Occupational Fraud Facts Organizations lose an estimated 5% of annual revenue to fraud Median loss 150K Avg 18 months before detected 1/5 of incidents has losses at least 1M source: ACFE 2016 Report to the Nations on Occupational Fraud and Abuse

6 Fraud Risk Management Principles Governance DAOD As a part of the governance structure, a fraud risk policy should be in place, including a written policy to convey expectations of senior management in managing fraud risk. Assessment Prevention Detection Investigative Fraud risk exposure should be assessed by the organization to identify potential schemes and events that the organization needs to mitigate Prevention techniques to avoid fraud risk events should be established, where feasible, to mitigate possible impacts on the organization. Detection techniques should be established to uncover fraud events when preventative measures fail or unmitigated risks are realized. A reporting process should be in place to solicit input on potential fraud, and a coordinated approach to investigation and corrective action should be used to help ensure potential fraud is addressed appropriately and timely. source: PRA Group IIA National Conference 2010

7 Incidents in DND falsified claims forgery theft of food, supplies, materials borrowing money

8 Halifax Herald News 18 Apr 13 Canadian military police allege that five people, three of whom are employees of a DND office at 12 Wing Shearwater, bilked the military of $ 915, (file)

9 Headline Halifax Herald News 18 Apr 13: Military Investigation Reveals 1M Fraud Scheme Current investigation into alleged fraud at 12 Wing Shearwater Five people created shell companies to bid on Shearwater Heating contracts Contract split - kept it to under 5K limit Occurred over four years Identified by a compliance staff reported potentially fraudulent activity to supervisors. Examination of quotes revealed same handwriting on all the documents supposedly from numerous companies. ( scheme#.uxmorcakdv5.

10 Champagne Wishes He stole $100 million, lived like a king. Then it all fell apart. source: Macleans article by Steve Maich July 2, 2009

11 Champagne wishes He stole $100 million, and lived like a king. Then it all fell apart. by Steve Maich on Thursday, July 2, :20am 2009 Macleans Magazine Article 100 Million Dollar Fraud Embezzled through phony invoicing scam Ran it for almost a decade ( ) Billed DND for computer support service contracts never provided GOV sought 146M refund

12 Profile of a Fraudster Can t pick them out of a crowd Over half at between ages Most had never had a previous record Only 5.2% had previous convictions Mixed male 73% and female 27% mngrs source: ACFE 2016 Survey

13 The Perpetrator s Dept Accounting (17%) Operations (15%) Sales (12%) Executive/ Upper Mngmnt (11%) Customer Service (9%) Purchasing (7%) Source: ACFE 2016 Survey

14 Elements of Fraud Pressure/Motive Rationalization Opportunity

15 Warning Signs and Red Flags Most Common behavioural red flags demonstrated by perpetrators: - living beyond one s means (44%) - experiencing financial difficulty ( 38%) Source: ACFE 2016 Survey

16 Behavioural Warnings Unusually close association with vendor/customer (22%) Control issues: unwillingness to share duties (21%) Wheeler-dealer attitude (18%) Divorce/family problems (17%) Irritability, suspiciousness or defensiveness (15%) Addiction problems (12%) Refusal to take vacations (9%) source: ACFE 2016 Survey

17 Pressure/Motive Examples getting kids through college helping aged parent through medical crisis keeping up with associates setback in economy bonus linked to performance or sales source: Fraud Related Interviewing Don Rabon

18 What Can You Do?

19 Thank you Lisa dewit Formation Review