The Authority on Investigations

1. The Authority on Investigations Wayne Kiely General Manager, CFE

2. PAYROLLFRAUDPRESENTATIONWayne KielyGM Paragon Willie Harris,Case Manager Mike Georgantis, Investigator

3. PRESENTER • EX DETECTIVE NZ POLICE (18 years) • NZ POST SECURITY & INVESTIGATION • Security Adviser / Manager (10 years) • PRIVATE INVESTIGATOR / SECURITY CONSULTANT (Last 10 years)

4. PRESENTER EXPERIENCE • Experienced investigating Fraud - Police, NZ Post and Private Sector • Inaugural Member NZ Bankers / Telco / Post Fraud Prevention group • Member UPS World Airport Security Group • Certified Fraud Examiner

5. UPDATE • WHO IN THE ROOM HAS HAD FRAUD IN THEIR ORGANISATION SINCE LAST CONFERENCE?

6. LATEST NZ FRAUD DATA • KPMG - NZ Fraud Bribery and Corruption Survey 2012 – Key Findings • Estimated loss to fraud $18.26M a 7% increase since 2008 • Average loss to organisations $433,721 • 500 – 1000 employees 62% had fraud • 1000+ employees 86% had fraud

7. LATEST NZ FRAUD DATA • 60% RESPONDENTS FELT THEY HAD ONLY DETECTED 50% OF THE FRAUD IN THEIR ORGANISATION • 44% RESPONDENTS FELT FRAUD WAS A PROBLEM IN NEW ZEALAND • TOP THREE INDUSTRIES - PUBLIC ADMIN & SAFETY; FINANCE & INSURANCE; MANUFACTURING

8. LATEST FRAUD DATA • SOME GOOD NEWS FOR PAYROLL • 84% OFFENDERS EXTERNAL 17% WERE INTERNAL • MAJOR SHIFT IN MOTIVATION FROM GREED LIFESTYLE TO FINANCIAL PRESSURE • 50% OF INTERNAL OFFENDERS WERE EARNING LESS THAN $50K AND 75% ACTED ALONE

9. LATEST FRAUD DATA • HOW WAS FRAUD DETECTED?

10. CONTRIBUTING FACTORS FRAUD ?

11. WHAT IS THE ONE THING THAT STANDS OUT IN LATEST SURVEY THAT WE SHOULD ALL TAKE AWAY TODAY

12. INTERNAL CONTROLS YOUR ORGANISATION MUST AT THE MINIMUM HAVE SOUND INTERNAL CONTROLS FOR BOTH PREVENTION AND DETECTION OF PAYROLL FRAUD

13. What is Payroll Fraud ??

14. Types of Payroll schemes • Ghost Employees • Time Theft - Falsified Hours and Timesheets • False allowances call-outs • Leave fraud • Commission Schemes

15. CONTROLS • If possible ensure the payroll functions are segregated where possible to allow controls and stop collusion. • Maintain personnel records separate to payroll functions. • Regularly check electronic payroll information for duplicate bank accounts, IRD numbers, PO Boxes, email and street addresses • Audit change of employee information especially bank accounts • Use direct / electronic deposits wherever possible • Are leave applications reviewed for compliance with company policies?

16. CONTOLS • Regularly audit payroll against personnel records for terminations • Have sound whistleblower processes in place • Payroll bank account should be reconciled by someone not involved in payroll. • Are cancelled rejected payments or IRD numbers documented and followed up on • Is payroll information up to date and regularly maintained.

17. CONTROLS • Does change to employees salary require two authorised signatures • Ensure overtime authorised • Consider electronic time clocks and CCTV • Compare commission expenses to sales figures - Calculate commissions away from sales departments • Be very careful with verifying backgrounds on part-time or casual employees, as this is a common area for payroll fraud

18. CASE STUDY • South Auckland Manufacturer • Head office out of Auckland • Fired employee whistleblower provided information that plant manager paying people not working on site • Audit and review of the CCTV system showed team leader standing at time clock with up to 8 fobs clocking people in • Enquiries showed manger’s wife was on payroll when it was believed she was Samoa • Whistleblower had kept meticulous records of when employees started and finished and provided these to the company. • Investigation commenced Private Investigators called in early

19. CASE STUDY • Commenced interviewing employees and established: • Team leader and manager controlled manual time sheets and purported to head office electronic time clocks were unreliable • Team leader paid his wife $81,201.17 as a supervisor who never worked at factory • Plant manager paid his wife (ex employee) $19,068.60 when she was in Samoa • IT/HR Manager provided electronic fobs for ghost employees • High percentage of the employees were related to the manager and were being paid overtime in the weekend and did not work

20. CASE STUDY • Was large scale theft and misappropriation of company product occurring by the family group. • Evidence was located in manager’s office including false manual time sheets and pay slips for ghost employees • Other deviant behavior was occurring with a father and three sons all apprehended selling, in possession or using drugs in the workplace • Factory manager and supervisor both charged with fraud both convicted sentenced to community detention ands ordered to make full reparation.

21. CASE STUDY

22. DOES PORN HAVE ANY CONNECTION TO FRAUD?

23. Fraud investigations linked to Porn & Deviant behaviour? YES - Based on going thesis by Ryan Hubbs The US survey based on over 19,000 articles on fraud in the workplace between Oct 2010 and Jan 2011. Of those 19,000 articles, 16,824 also involved some form of deviant behaviour. Example of recent SFO investigations include: $3m spent on prostitutes Prostitutes in various cities and porn on work PC Bestiality on her computer Bestiality on work PC Used receptionist PC to access porn Lawyer – Every square inch of his office walls covered in centrefolds and in view of female staff.

24. So What Does This Mean When deviant behaviour identified: Conduct correlation testing What financial processes can this person access? Consider whether the deviant behaviour (bullying for example) has weakened the internal controls

25. So What Does This Mean Not a silver bullet but: Supplements usual red flags May uncover fraud that traditional methods fail to uncover Fraudsters may not cover their deviant behaviour to the same extent as their frauds Is a proactive tool in fighting fraud, waste and abuse

26. QUESTIONS?