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Detecting andPreventing FraudCharles B. Hall, CPA, CFE, MAcc
[email protected]
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Overview
Who commits fraud?
Where does fraud occur?
How to detect fraud?How to prevent fraud?
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Statistical Information
The statistical information in
this presentation was takenfrom the 2012 Report to the Nation as
published by the
Association of Certified FraudExaminers
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Who Commits Fraud?
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Tax
Commissioner
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Cancer Society
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HealthDepartment
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Sometimes lossescome with sirensand warnings...
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Natural disaster $20 billion indamages
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Fraud$3.5 trillionin damages
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Unlike a hurricane,fraud moves quietly
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But the damage is just as real
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A typicalorganization loses5% of revenues
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Median loss$140,000
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What does afraudster look like?
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Trusted Employee
Employee has been with the
company for a whileEmployee is well known and
often well liked
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Trusted Employee
Employee is trusted
Employee is usually male
Employee is usually in his or her 40s or 50s
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Will a policechief steal?
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How about a CEO?
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87% - First time
offenders with cleanemploymenthistories
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Trust
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Higher levelauthority =breakdown insegregation of
duties
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Losses by Level
Level Median Loss
Owner/Executive $573,000
Manager $180,000Employee $60,000
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One-fifth of
frauds weregreater than$1 million
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Time untilfraud is
detected?
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18 Months
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Where DoesFraud Occur?
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Where?
Type Percent Median Loss
AssetMisappropriation 87% $120,000
FinancialStatement Fraud 8% $1,000,000
Corruption 33% $250,000
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Where?
Type Percent
Billing 26%
Corruption 25%
ExpenseReimbursement 17%
Skimming 16%
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Where?
Type Percent
Non-cash 15%
Check tampering 15%
Payroll 11%
Cash on hand 11%
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Billing and
corruption made up50% of the
reported fraud
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Size of Organization
Number of Employees Percent of Cases
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Control Weaknesses
Control Weakness Percent of Cases
Lack of controls 35%
Override of controls 19%
Lack of review 19%
Poor tone at top 9%
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How toDetect Fraud
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Fraud Detection
Implement a hotline
Implement data mining tomonitor operations
Perform surprise audits
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Fraud Detection
Segregate duties
Educate your employeesabout fraud
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Initial Detection
Detection Percent
Tip 43%Management
review 15%
Internal audit 14%
By accident 7%
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Initial detection byconfession - 1%
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Tips
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Source of Tips
Source Percent
Employee 51%
Customer 22%
Anonymous 12%
Vendor 9%
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Internal Controls
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Segregation of duties
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Managementreview procedures
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Data mining
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Data Mining Sof tware
IDEA
ACL
Topcaats Active Data
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Big brother?
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Trust but
verify
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How toPrevent Fraud
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You cannot preventall fraud
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But there is anotable decreasewhen anti-fraudcontrols are in
place
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And
time-to-detectiondecreases
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49% of victimsrecovered $0
after frauddetection
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Many businesseswill not prosecute
due tonegative publicity
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Oops...Where did $53 million go?
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An ounce of prevention...
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Balance
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Prevention Steps
Create a heat map
Implement controls to preventor detect theft
Monitor your controls
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Prevention Steps
Perform surprise audits
Prosecute when fraud isdetected (send a message)
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Conclusion
McNair, McLemore, Middlebrooks & Co., LLC
Office number: 478-746-6277Contact:
Charles Hall at [email protected] cpa-scribo.com (accounting and
auditingblog)
mailto:[email protected]:[email protected]
