Foiling FraudstersFoiling Fraudsters Laurie Beets Oklahoma ... · Acknowledgements 2006 Fraud Examiners Manual, Association of Certified Fraud Examiners (ACFE)of Certified Fraud Examiners

Foiling FraudstersFoiling Fraudsters

Laurie BeetsOklahoma State Uni ersitOklahoma State University

PDG 27th National College & University Bursars & SFS Conference

Acknowledgementsg 2006 Fraud Examiners Manual, Association

of Certified Fraud Examiners (ACFE)of Certified Fraud Examiners (ACFE) 2012 Report to the Nation on Occupational

Fraud & Abuse ACFEFraud & Abuse, ACFE AICPA Webcast: Financial Fraud from the

Fraudster’s Perspective How GoodFraudster s Perspective . . . How Good People Go Bad

Other People’s Money: The Basics of Other People s Money: The Basics of Asset Misappropriation (ACFE)

Black’s Law DictionaryPDG 27th National College & University Bursars & SFS Conference

Black s Law Dictionary

Acknowledgementsg

David Bosserman Oklahoma State University David Bosserman, Oklahoma State University Kathy Elliott, Oklahoma State University

B Di Okl h St t U i it Brenna Dixon, Oklahoma State University Kathleen T. McNeely, Indiana University


Introduction

This presentation is designed to identifyThis presentation is designed to identify common fraud risks pertaining to the higher education; identify procedures andhigher education; identify procedures and controls to mitigate risk . An understanding will also be gained ofunderstanding will also be gained of measures to deter offenders who commit fraud and ways to foil fraudstersfraud and ways to foil fraudsters.


Session Objectivesj

Fraud Introduction Fraudster Traits Higher Education Fraud Statistics Tips to Mitigate Riskp g Deterrents & Security Measures


Consequences of Fraudq

Negative press Negative press Loss of reputation – both institutional and

personalpersonal Loss of funds Lack of confidence in management Costly investigationy g Lengthy court case


Definition of Fraud“. . . all varied means which human ingenuity

can devise, and which are resorted to by one individual to get an advantage over another by false suggestions or suppression of the truth. It includes all surprise, trick, cunning or dissembling and any unfair way by which another is cheated. . .”


Black’s Law Dictionary

Definition of Fraud

In other words…. fraud includes any intentioned or deliberate act to depriveintentioned or deliberate act to deprive another of property or money by guile, deception or other unfair meansdeception or other unfair means


2006 Fraud Examiners Manual2006 Fraud Examiners Manual, Association of Certified Fraud Examiners, Association of Certified Fraud Examiners

Theft

Black’s Law Dictionary defines theft as: “the act of taking property withoutas: the act of taking property without the owner’s consent.”

Most cash theft schemes committedMost cash theft schemes committed by employees focus on either currency or checkscurrency or checks.


What are the ComponentsWhat are the Components for a Person to Commitfor a Person to Commit

Fraud?


Cressey’s Fraud Triangley g

Perceived OpportunityPerceived Opportunity

FRAUD

GTRIANGLE

Pressure Rationalization2006 Fraud Examiners Manual2006 Fraud Examiners Manual Association of Certified Fraud ExaminersAssociation of Certified Fraud Examiners



Cressey’s Fraud Triangley gFraudsters earlier refrain for a time but

then commit the violation because……… No need at the earlier time Idea never entered my head initially Dishonest activity starts out small Dishonest activity starts out small Then it just did not seem dishonest Violator considers their (financial) situation

cannot be shared



What are does a FraudsterWhat are does a Fraudster look like?look like?





Who Commits Fraud?

Majority are Male Age 31 45 Age 31-45 Worked 1-5 years at organization 54% have a college degree or higher 54% have a college degree or higher 77% work in Accounting Departments,

Operations, Exec/Upper Mgmt., Sales, C t S & P h i )Customer Svc, & Purchasing)

Less than 7% had a previous fraud related convictionconviction

84% no employment punishments or terminated


Behavioral Red Flagsg

• Living beyond means• Financial difficulties

• Past employment-related problems

• Wheeler-dealer attitude• Control issues, unwilling to

share dutiesDi / f il bl

• Complaining about inadequate pay

• Refusal to take vacations• Excessive pressure from within• Divorce / family problems

• Unusually close association w/ vendor

• Irritability, suspiciousness, or

• Excessive pressure from within organization

• Instability in life circumstances• Excessive family / peer Irritability, suspiciousness, or

defensiveness• Addiction problems• Past legal problems

y ppressure for success

• Complaining about lack of authority


What are Fraud Statistics inWhat are Fraud Statistics in Higher Education?Higher Education?


Focus on Asset Misappropriationpp p By far the most common of all occupational

fraud- 86 7%fraud- 86.7%

The three major categories are:Cash receipt schemes (Skimming, Larceny)Fraudulent disbursements (Billing, Ck

Tampering)Tampering)Non-Cash (Theft of inventory & other assets)


2012 Report to the Nation, ACFE

Asset Misappropriation- Education:BillingBilling 28 cases28 cases 31.8%31.8%Expense Reimb. 23 cases 26.1%

pp p

Corruption 21 cases 23.9%SkimmingSkimming 19 cases19 cases 21.6%21.6%

Pa roll 13 cases 14 8%Payroll 13 cases 14.8%Check TamperingCheck Tampering 11 cases11 cases 12.5%12.5%Cash on HandCash on Hand 11 cases11 cases 12 5%12 5%Cash on HandCash on Hand 11 cases11 cases 12.5%12.5%Cash LarcenyCash Larceny 8 cases8 cases 9.1%9.1%Non-Cash 7 cases 8.0%Register DisbRegister Disb 5 cases5 cases 5.7%5.7%Financial Stmt Fraud 4 cases 4.5%


Asset Misappropriation- All

Education: All Cases:

pp p

Billing 28 cases 31.8% 26.1% Expense Reimbursements 23 cases 26.1% 16.6% Corruption 21 cases 23.9% 26.1% Skimming 19 cases 21.6% 15.7% Payroll 13 cases 14.8% 11.6% Check Tampering 11 cases 12.5% 14.9% Cash on Hand 11 cases 12 5% 11 4% Cash on Hand 11 cases 12.5% 11.4% Cash Larceny 8 cases 9.1% 11.2% Non-Cash 7 cases 8.0% 15.4% Register Disbursements 5 cases 5.7% 3.1%g Financial Stmt Fraud 4 cases 4.5% 7.2%

2012 Report to the Nation ACFE



Wh t i Mi i iWhat is Missing in an Organizations to PerpetuateOrganizations to Perpetuate

Fraud?


2012 ACFE Report to the Nationp


Internal Controls Objectives

Financial and operating information Financial and operating information is accurate and reliable

Policies, procedures, plans, laws, and regulations are complied with

Assets are safeguarded against loss and theftand theft

Resources are used economically and efficientlyy

Established programs / operating goals and objectives are met

PDG 27th National College & University Bursars & SFS Conference2008 Fraud Examiners Manual, ACFE

Internal Controls Proper Segregation of Duties Proper Authorization Procedures Proper Authorization Procedures Adequate Documentation,

Records and Audit TrailRecords and Audit Trail Physical Control Over Assets and

RecordsRecords Independent Checks on

PerformancePerformance Monitoring Controls


Internal Controls Limitations:

E l k i t k Employees can make mistakes or exercise poor judgmentColl sion Collusion

Management may inappropriately overrideinappropriately override established policies or proceduresprocedures


Response To Fraudp Internal controls most modified/implemented in

response to the frauds were:response to the frauds were:

Management Review of Internal Controls Management Review of Internal Controls Surprise Audits Fraud Training for Managers / Executives Fraud Training for Employees Job Rotation / Mandatory Vacation Anti-Fraud Policy Internal Audit or Fraud Examination Department


If I Suspect Fraud Should IIf I Suspect Fraud Should I Report it?Report it?


Anonymous Employee Tipsy p y p

EthicsPoint -- a reporting tool assisting the University community in working together toUniversity community in working together to address fraud, abuse, misconduct, and other violations while helping to cultivate a positiveviolations, while helping to cultivate a positive environment.



Anonymous Employee Tipy p y p OSU guarantees reports will be handled

tl & di tl ith f t dpromptly & discreetly with facts made available to those who need to know to investigate & resolve the matterinvestigate & resolve the matter.

N t li t ti ill b t k i t No retaliatory action will be taken against anyone for reporting or inquiring in good faith about potential breaches of OSU policies orabout potential breaches of OSU policies or seeking guidance with respect to suspected concerns.


concerns.


Prevent FraudPrevent Fraud

Steps to prevent fraud by Steps to prevent fraud by employees…W ki i t Working environment

Hiring Training Establishing and maintaining internal Establishing and maintaining internal

t lt lcontrolscontrols Report fraud timely


Detection - Data Analysis Softwarey Users can quickly & accurately read, manipulate,

sample or extract data files from almost any p ysource – mainframe to PC – including reports printed to a fileF lfill i i i bj i Fulfills continuous monitoring objectives

Enhances policy compliance/assuranceF d l i t i l d d Fraud analysis component includes canned analysis reports to identify questionable transactions, including multiple payments,transactions, including multiple payments, duplicate vendors/invoices, large rounded transactions, dormant account activity, etc.


Final Facts About Fraud Typical losses - 7% of annual revenues Primary contributing factor- 35% cited y g

inadequate internal controls Most common means of detecting fraud:

E l iE l i 43 3%43 3% Employee tipsEmployee tips 43.3%43.3% Management Review 14.6% Internal Audit 14 4% Internal Audit 14.4% Accident 7.0% Account Reconciliation 4.8% External Audit 3.3%



? ? Questions???Q Comments??

Share an fraud story?y

Association of Certified Fraud Examiners Association of Certified Fraud Examiners http://www.acfe.comSh ld b ib D t f I t l A diti Should subscribe Dept. of Internal Auditing Auburn University newsletter: Case in Point


Foiling Fraudsters

Laurie BeetsOklahoma State University


Documents

Foiling FraudstersFoiling Fraudsters Laurie Beets Oklahoma ... · Acknowledgements 2006 Fraud Examiners Manual, Association of Certified Fraud Examiners (ACFE)of Certified Fraud Examiners