Have you dealt with fraud in the past?

Transcription

1 Birmingham CPE Seminar Birmingham, Alabama August 17, 2017 Fraud: Real People, Real Schemes Roy Strickland, CPA/CFF, CFE, MAFF 1 Polling Question Have you dealt with fraud in the past? 2 DHG Birmingham CPE Seminar 1

2 Corruption Asset Misappropriation Fraudulent Statements Conflicts of Interest Bribery Illegal Gratuities Economic Extortion Financial Non-Financial Cash Non-Cash Larceny Skimming Fraudulent Disbursements Check Tampering Billing Schemes Payroll Schemes Expense Reimbursement Schemes Register Disbursements Misuse Larceny 3 Purpose of Internal Controls Ensures everything is done timely (order and efficiency) Ensures everything is done correctly (accuracy and completeness) Protects the assets of the organization (waste, fraud, and abuse) 4 DHG Birmingham CPE Seminar 2

3 The Human Element Internal controls in and of themselves do not ensure these purposes are met People within and organization following and enforcing internal controls do 5 The Human Element Controls Impeded Efficiency Inherent in every internal control is an additional layer of time and effort added to an individual s responsibilities Lack of Communication and Understanding Trust Trust is not an internal control 6 DHG Birmingham CPE Seminar 3

4 White Collar Crimes 7 Capital Crimes 8 DHG Birmingham CPE Seminar 4

5 White Collar Criminals Don t Necessarily Look Like Criminals 9 Do good people commit fraud? 10 DHG Birmingham CPE Seminar 5

6 YES Business Partner Trusted Employee Friend Family Member Business Advisor Trustee 11 Good People Commit Fraud Understanding this fact is the key to establishing awareness and deterrence in this area to protect an organization and its employees Small Businesses vs. Big Businesses Big businesses are comprised of a lot of small businesses 12 DHG Birmingham CPE Seminar 6

7 Perpetrators * Association of Fraud Examiners 2014 Report to the Nations on Occupational Fraud and Abuse 13 Perpetrators * Association of Fraud Examiners 2014 Report to the Nations on Occupational Fraud and Abuse 14 DHG Birmingham CPE Seminar 7

8 Enabling Factors Donald Cressey s Fraud Triangle Perceived Opportunity Incentive / Pressure Rationalization **Personal integrity may be the most important factor in keeping a person from misappropriating assets.** 15 The Cycle Long term trusted employee Opportunity Runs into outside pressure or incentives Begins to rationalize Intends to repay I deserve it Makes the wrong decision Starts gradually Builds slowly over a period of time Hindsight is 20/20 It all makes sense in the end 16 DHG Birmingham CPE Seminar 8

9 Pressures and/or Incentives Mid-life Crisis Alcohol/Drugs Gambling Financial Difficulties Medical Costs due to illness Work Pressures To meet budgets To enhance bonuses 17 The 18 DHG Birmingham CPE Seminar 9

10 What do you do? Contact Counsel Labor Law Insurance Regulatory Identify and preserve sources of evidence Digital Public Records Social Media Records in Office Investigate Interview 19 Deterrence The most cost effective way to deal with occupational fraud is to deter it Deal with what we know Good people commit fraud Communication / awareness Controls protect organization and employees 20 DHG Birmingham CPE Seminar 10

11 Prevention Atmosphere of oversight Fraud Policy ( Because nobody asked. ) Fraud Risk Assessment Fraud Awareness Training 21 Prevention Afew key areas based on real fraud investigations Bank reconciliations; review cancelled checks Real segregation of duties Unpredictability in all compliance testing SURPRISE! SURPRISE! Unannounced Do not disclose sample selections Anonymous reporting mechanisms Job rotation/mandatory vacation 22 DHG Birmingham CPE Seminar 11

12 Prevention Afew key areas based on real fraud investigations Understand relationships In-house Customers Vendors Communicate importance of approval process Process of substance Utilize technology in testing (data analytics) 23 Analytical Results Benford s Law 24 DHG Birmingham CPE Seminar 12

13 Fraudulent Disbursements Example #1 25 Check Image 26 DHG Birmingham CPE Seminar 13

14 Bank Statement 27 Check Register 28 DHG Birmingham CPE Seminar 14

15 Fraudulent Disbursements Example #2 29 Check Image 30 DHG Birmingham CPE Seminar 15

16 Bank Statement 31 General Ledger 32 DHG Birmingham CPE Seminar 16

17 The Review of the Bank Reconciliation is a Process of Substance 33 Fraudulent Disbursements Example #3 34 DHG Birmingham CPE Seminar 17

18 Check Image 35 Check Image 36 DHG Birmingham CPE Seminar 18

19 Fraudulent Disbursements Example #4 37 Payable to Bank 38 DHG Birmingham CPE Seminar 19

20 Payable to Bank 39 Importance of Electronic Evidence 40 DHG Birmingham CPE Seminar 20

21 Text Messages Example #5 41 Theft of Vault Cash November 21, :53:59 PM EST They up my xxx with all of this. November 21, :54:46 PM EST Proving u took anythg is going to be the hard part because ur lifestyle never changed. But everyone is hurting right now. November 21, :55:15 PM EST I will call u in a bit. Just stick with ur story cause again they have to prove u took the funds. November 21, :55:36 PM EST I gotta cover my xxx cause I think they gonna try to come at me and xxxx cause I'm over operations. 42 DHG Birmingham CPE Seminar 21

22 Questions 43 Questions Roy Strickland, CPA/CFF, CFE, MAFF Charleston, SC DHG Birmingham CPE Seminar 22