Steering clear of fraud
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Steering Clear of Fraud. Stop Me When You Think We Have A Problem. Director of Accounting Received cash Made bank deposits Received and approved vendor invoices Wrote checks Posted G/L Payroll Reconciled bank accounts Custodian of records. Lifestyle. Modest income: Two homes Boat

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Steering Clear of Fraud

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Steering clear of fraud

Steering Clear of Fraud

John L. Tonsick, CPA, CFE 213-716-0667


Stop me when you think we have a problem

Stop Me When You Think We Have A Problem

  • Director of Accounting

    • Received cash

    • Made bank deposits

    • Received and approved vendor invoices

    • Wrote checks

    • Posted G/L

    • Payroll

    • Reconciled bank accounts

    • Custodian of records

John L. Tonsick, CPA, CFE 213-716-0667


Lifestyle

Lifestyle

Modest income:

  • Two homes

  • Boat

  • New car every 2 years

  • Season baseball tickets

  • Vacations

  • Gambling

John L. Tonsick, CPA, CFE 213-716-0667


Auditors

Auditors?

John L. Tonsick, CPA, CFE 213-716-0667


What happened

What Happened?

Stole more than $500,000 over 2 years

  • Traveler’s checks

  • Corporate credit card

  • Cash receipts

John L. Tonsick, CPA, CFE 213-716-0667


How it was concealed

How it was concealed?

  • Fraudulent journal entries

  • Altered bank deposits

  • Altered credit card statements

  • Bank reconciliations

    • Manipulated outstanding checks

    • Altered bank statements

John L. Tonsick, CPA, CFE 213-716-0667


Fraud statistics

Fraud Statistics

  • 5% of GDP lost to employee fraud & abuse

  • $652 billion annually

  • Median loss $159,000

  • Nearly one in four caused losses in excess of $1 MM

    Source: Association of Certified Fraud Examiners' Report to the Nation.

John L. Tonsick, CPA, CFE 213-716-0667


Fraud statistics1

Fraud Statistics

  • Men perpetrate 61% of fraud

  • Men cause losses more than twice those caused by women

  • Median loss from fraud by employees making $50,000/year or less is $75,000

  • Median loss from fraud by employees making $500,000/year or more is $8 Million

    Source: Association of Certified Fraud Examiners' Report to the Nation

John L. Tonsick, CPA, CFE 213-716-0667


Fraud statistics2

Fraud Statistics

  • Median losses caused by those 25 or younger are $25,000

  • Median losses caused by those over 60 are $713,000

  • Perpetrators with post-graduate degrees cause losses more than twice those of perpetrators with only undergraduate degrees

  • Multiple perpetrators cause median losses of $485,000; nearly five times higher than perpetrators acting alone

    Source: Association of Certified Fraud Examiners' Report to the Nation

John L. Tonsick, CPA, CFE 213-716-0667


How fraud happens

How Fraud Happens

  • Asset Misappropriation: 92%.

  • Corruption – Bribery, Kick-backs, illegal gratuities, conflicts of interest: 31%.

  • Fraudulent Statements: 11%.

John L. Tonsick, CPA, CFE 213-716-0667


Why fraud happens

Why Fraud Happens

  • Immediate Need

  • Opportunity

  • Ability to Rationalize

John L. Tonsick, CPA, CFE

213-716-0667


Immediate need

Immediate Need

Un-sharable Problem

  • Living beyond one’s means

  • Drugs, alcohol, gambling

  • Romantic involvement

  • Financial emergency

John L. Tonsick, CPA, CFE

213-716-0667


Opportunity

Opportunity

  • Trust

  • Weak Internal Controls

    • Lax oversight

    • Power to override controls

John L. Tonsick, CPA, CFE

213-716-0667


Ability to rationalize

“Ability to Rationalize”

  • “Everybody else is doing it”

  • “The company owes me”

  • “It’s just a loan, I’ll pay it back”

  • “The rules don’t apply to me”

John L. Tonsick, CPA, CFE

213-716-0667


Red flags of fraud

“Red Flags of Fraud

  • Lifestyle issues

    • Sex, drugs, rock & roll

  • Performance that’s too good to be true

  • Employees who never take vacation

John L. Tonsick, CPA, CFE 213-716-0667


Red flags of fraud1

“Red Flags” of Fraud

  • Poor accounting records

  • Missing documents

  • Photocopies

  • Excessive adjustments

  • Increased write-offs

  • Customer/employee complaints

  • Related party transactions

  • General ledger doesn’t balance

John L. Tonsick, CPA, CFE 213-716-0667


Tools and techniques to minimize fraud risk

Tools and TechniquesTo Minimize Fraud Risk

John L. Tonsick, CPA, CFE 213-716-0667


1 expect fraud

# 1 - Expect Fraud

It cannot be eliminated; only managed!

John L. Tonsick, CPA, CFE 213-716-0667


2 know your business

# 2 - Know Your Business

John L. Tonsick, CPA, CFE 213-716-0667


3 know your employees

# 3 – Know Your Employees

  • Over 30% of resumes contain false statements

John L. Tonsick, CPA, CFE 213-716-0667


4 look for fraud

# 4 – Look For Fraud

John L. Tonsick, CPA, CFE 213-716-0667


5 recognize limitations of internal controls

# 5 – Recognize Limitations of Internal Controls

  • Controls break down

  • Circumstances change

John L. Tonsick, CPA, CFE 213-716-0667


5 things you can do tomorrow

5 Things You Can Do Tomorrow

  • Compare A/P file to payroll file

    Common addresses

    Bank account numbers

  • Review vendor master file

    Vendors without street addresses

    Illogical addresses

    Similar names

  • Review expense reports

  • Re-perform bank reconciliations

  • Re-perform subsidiary to G/L reconciliations

John L. Tonsick, CPA, CFE 213-716-0667


Steering clear of fraud

John Tonsick CPA, CFERisk Solutions & Investigations811 Wilshire Blvd., Suite 1650Los Angeles, CA 90017email: [email protected]

website: www.Tonsick.com213-716-0667

John L. Tonsick, CPA, CFE 213-716-0667


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