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Red Flags of

Red Flags of. Caroline Burnell, CFE, CGFM. Occupational fraud. Caroline Burnell. Fraud Investigator 25 years experience in auditing and fraud investigations. Sources:.

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Red Flags of

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  1. Red Flags of Caroline Burnell, CFE, CGFM Occupational fraud

  2. Caroline Burnell • Fraud Investigator • 25 years experience in auditing and fraud investigations

  3. Sources: State of New York, Office of State Comptroller, Red Flags for Fraud http://www.osc.state.ny.us/localgov/pubs/red_flags_fraud.pdf Accessed January 8, 2014. Wells, Joseph T; Corporate Fraud Handbook Prevention and Detection, 3rd Edition. 2011 cmburnell@comcast.net

  4. Red FlagsDefined cmburnell@comcast.net

  5. RED FLAGS A set of circumstances that are unusual in nature or vary from the normal activity. cmburnell@comcast.net

  6. RED FLAGS • Do not ignore a red flag! • Studies of fraud cases consistently show that red flags were present, but either weren’t recognized or were recognized but not acted upon by anyone. cmburnell@comcast.net

  7. RED FLAGS • The investigation should be done by a responsible person who is unlikely to be committing the fraud if one is occurring. • Sometimes an error is just an error. cmburnell@comcast.net

  8. FraudAnd Its Perpetrators cmburnell@comcast.net

  9. Key Points Required Conditions: cmburnell@comcast.net

  10. ANYONE within the organization can commit fraud. cmburnell@comcast.net

  11. Highly trusted employees are NOT always honest. cmburnell@comcast.net

  12. Perpetrators • Past Employment-Related Problems • Unusually Close Association with Vendor/Customer • Wheeler-Dealer Attitude • Irritability, Suspiciousness or Defensiveness • Control Issues, Unwillingness to Share Duties • Refusal to Take Vacations • Complained About Inadequate Pay • Complained About Lack of Authority cmburnell@comcast.net

  13. Perpetrators • Excessive Pressure from Within Organization • Excessive Family/Peer Pressure for Success • Financial Difficulties • Addiction Problems • Divorce/Family Problems • Past Legal Problems Source: ACFE 2012 Report to the Nations cmburnell@comcast.net

  14. War Story cmburnell@comcast.net

  15. War StoryRed Flags cmburnell@comcast.net

  16. Legal Pressure • Past Theft • Financial Pressure • Similar looking invoices • Sequentially numbered invoices • Same address / telephone number • No email or web address • Executive Directive submitted an invoice from one of his companies for payment of an item that was never delivered. • Checks payable to companies endorsed by Executive Director and/or his family cmburnell@comcast.net

  17. Billing Schemes cmburnell@comcast.net

  18. Shell Companies Shell companies are fictitious entities created for the sole purpose of committing fraud by shielding identities of the perpetrator and/or hiding money. cmburnell@comcast.net

  19. Shell Companies • No phone number • No e-mail or web address • No physical address • No company logo • No contact information • No federal identification number cmburnell@comcast.net

  20. False Invoices Running unsanctioned invoices through the accounts payable system. May be done with vendor collusion. cmburnell@comcast.net

  21. False Invoices • Invoices cannot be traced to shipments. • Multiple payments to single vendor on the same date. • Pattern of purchases just below review level. • Unusually quick turnaround of invoices. • Payment to multiple vendors for same product. cmburnell@comcast.net

  22. False Invoices • Expenses increase dramatically. • Unexplained rise in cost of goods sold. • Unexplained decrease in gross/net profits. • Excessive materials orders. • Goods not purchased at optimal point. • High level approval of a low level transaction cmburnell@comcast.net

  23. Check Tampering cmburnell@comcast.net

  24. Check Tampering • Preparing a check for one’s own benefit • Intercepting a check intended for a third party and converting the check for one’s own benefit.

  25. Check Tampering: • Forged Maker Schemes • Authorized Maker Schemes • Concealed Check Schemes • Intercepted Check Schemes Payee Maker Endorsement

  26. Check Tampering • Missing checks. • Voided checks • Bank accounts that are not reconciled on a timely basis. • Sudden activity in dormant bank accounts cmburnell@comcast.net

  27. Check Tampering • Significant increase in payments to one vendor • Duplicate payments • Payments without supporting documentation • Accounting records that disagree with the supporting documentation cmburnell@comcast.net

  28. Check Tampering • Checks to employees, in excess of the # and $ amount of normal payroll checks. • Vendor & customer complaints regarding nonpayment. cmburnell@comcast.net

  29. Questions cmburnell@comcast.net

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