fraud the risk has increased n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
FRAUD-THE RISK HAS INCREASED PowerPoint Presentation
Download Presentation
FRAUD-THE RISK HAS INCREASED

Loading in 2 Seconds...

play fullscreen
1 / 35

FRAUD-THE RISK HAS INCREASED - PowerPoint PPT Presentation


  • 170 Views
  • Uploaded on

FRAUD-THE RISK HAS INCREASED. Larry Finney, GF&H. October, 2009. larry@gfhllp.com. INTRODUCTION. General increase in fraud awareness (risk of fraud) in past Sarbanes-Oxley Creation of PCAOB Various Statements on Auditing Standards Risk of fraud More emphasis on internal controls.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'FRAUD-THE RISK HAS INCREASED' - kana


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
fraud the risk has increased

FRAUD-THE RISK HAS INCREASED

Larry Finney, GF&H

October, 2009

larry@gfhllp.com

introduction
INTRODUCTION
  • General increase in fraud awareness (risk of fraud) in past
    • Sarbanes-Oxley
    • Creation of PCAOB
    • Various Statements on Auditing Standards
      • Risk of fraud
      • More emphasis on internal controls
introduction1
INTRODUCTION
  • Now actual fraud is on the rise
  • But it is not just fraud-it is questionable ethics, manipulation, expediency, bending the rules-it is all on the rise
  • Not just the economy-it looks like values and morals are slowly eroding in our society
case studies from 2008 2009
CASE STUDIES FROM 2008/2009
  • Small local government
    • Treasurer
    • Worked at gov’t for 34 years
    • Grown up in community
    • Three changes in bosses over 18 month period
    • Responsible for some deposits and receipting, bank reconciliations, payroll, accounts payable, and help with other functions in small finance office
case studies from 2008 20091
CASE STUDIES FROM 2008/2009
  • Small local government
    • Started paying herself
      • Vacation and sick pay, but not deducting hours
      • Extra payroll payment on off payroll day
      • Infrequent at first , but then more often
    • Charged to different accounts to stay under budget
    • Explanation
      • Family members having financial difficulties
      • Figured could pay it back
case studies from 2008 20092
CASE STUDIES FROM 2008/2009
  • Larger local government
    • Bookkeeper
    • Responsible for some depositing, accounts payable and some reporting
    • Made credit card purchases for government at request of others, including boss
    • Reconciled credit card purchases monthly and prepared check
      • Would give checks to boss or boss’ designee for signature
      • Would not include statements with checks
case studies from 2008 20093
CASE STUDIES FROM 2008/2009
  • Larger local government
    • Boss signed checks and gave back to bookkeeper
    • Bookkeeper started making personal purchases with credit card
      • When got short on cash, would not pay full balance
      • No one aware inside government
      • Multiple years
case studies from 2008 20094
CASE STUDIES FROM 2008/2009
  • Larger local government
    • Explanation
      • ?????
    • This one should have been caught-but not proper review and monitoring-too busy
    • Seemed okay with bending the rules-it was just a few personal things here and there-not a big deal
why is fraud risk higher now
WHY IS FRAUD RISK HIGHER NOW?

Opportunity

Rationalization

Motive

why is fraud risk higher now1
WHY IS FRAUD RISK HIGHER NOW?
  • It’s the economy stupid!
    • Family members have lost jobs or are working less hours
    • With less people at work, internal controls tend to fail more
    • Less monitoring and review (“I don’t have time to get it all done”)
    • Even the most trustworthy of people can fall to temptation, especially in certain circumstances
risk of fraud higher now
RISK OF FRAUD HIGHER NOW
  • This is why two things are critical in your organization:
    • Continuous fraud risk management process
    • Strong organizational culture regarding ethics and values
ethics
ETHICS
  • Ability to distinguish right from wrong AND the commitment to do what is right
  • Following the spirit and intent of rules and regulations as well as the letter
  • As opposed to:
    • Expediency
    • Manipulation
    • Bending rules where there is no flexibility
    • Rationalization
ethics1
ETHICS
  • Much of what happens ethically within an organization depends on the culture and environment
  • The culture and environment is set by the “tone at the top” of the organization
ethics 2007 national survey
ETHICS-2007 National Survey
  • Strength of organization-wide ethics culture has biggest impact on misconduct
    • 56% of employees observe misconduct
    • Top types of misconduct
      • Conflicts of interest
      • Abusive or intimidating behavior
      • Lying to employees
      • Fraudulent activity is further down the list
    • Increases dramatically as work environment increases in negativity
ethics 2007 national survey1
ETHICS-2007 National Survey
  • Strength of formal ethics program has greatest impact on encouraging employee reporting
    • 42% of employees don’t report observed misconduct
      • Primarily due to thoughts of futility fear of retaliation
      • 36% feared retaliation and didn’t report, but only 12% who reported experienced retaliation
      • One-third took matters into own hands
      • 40% would have had to report to person involved
ethics 2007 national survey2
ETHICS-2007 National Survey
  • 25% of organizations had well-implemented and comprehensive ethics and compliance program in place
    • Ethical leadership, supervisor reinforcement, peer commitment, embedded ethical values
    • 29% of employees with these organizations failed to report versus 61% of employees without comprehensive programs
    • 25% believe they are rewarded for ethical behavior and feel prepared to handle situations that could lead to misconduct
ethics 2007 national survey3
ETHICS-2007 National Survey
  • But only 9% have very strong ethical cultures!
  • Another 43% of fairly strong ethical cultures
  • 24% observed misconduct on very strong cultures versus 98% in weak cultures
fraud risk management
FRAUD RISK MANAGEMENT

Overall goal:

More Self Governance By Organizations

(Trust but be skeptical)

more self governance
MORE SELF GOVERNANCE…
  • Detection of fraud in government
      • Internal controls
      • Accident
      • Tips
      • Internal audit
      • External audit
      • Police
  • Source: ACFE 2008 report to the nation on occupational fraud and abuse
fraud risk management1
FRAUD RISK MANAGEMENT

ASSESS

PREVENT

EVALUATE

RESPOND

DESIGN

DETECT

IMPLEMENT

From KPMG

fraud risk management2
FRAUD RISK MANAGEMENT
  • Prevention
    • Leadership and Governance
      • Board/Audit committee oversight
      • Senior management oversight
      • Internal audit function
      • Fraud and misconduct risk assessment
        • What could go wrong?
        • Think criminally-put yourself in their shoes-if I wanted to commit fraud what could I do?
      • Then decide what to do about those high risks
fraud risk management3
FRAUD RISK MANAGEMENT
  • Prevention
    • Code of conduct
      • Should be based on organization’s core values
      • Should be backed up by good environment
    • Hiring, retention and promotion of employees and third-parties
    • Communication and training-continually
    • Internal controls
      • Limited access to data/information
      • Segregation of duties
      • Monitoring and review
      • Surprise people-be unpredictable
fraud risk management4
FRAUD RISK MANAGEMENT
  • Detection
    • Open culture and environment
    • Processes for reporting misconduct and seeking counsel
    • Auditing and monitoring
      • Proactive data analysis
      • Surprise audits
fraud risk management5
FRAUD RISK MANAGEMENT
  • Response
    • Investigations
    • Enforcement and accountability
    • Corrective action
    • Consistency
so what
SO WHAT?
  • The best organizations are those with very strong ethics cultures and with a strong ethics and compliance program, including a continuous fraud risk management program
so what1
SO WHAT?
  • So what do these organizations look like?
    • Strong support and communication from top management and supervisors regarding time, effort and energy into ethics and fraud risk management
    • Top management and supervisors keep promises and follows through on commitments (only commit to what you know you can do)
    • Policies and procedures show commitment to ethics and compliance
so what2
SO WHAT?
  • So what do these organizations look like?
    • Decisions/actions from top management and supervisors reinforce policies and procedures
    • Success through questionable means is not rewarded
    • Long-term commitment is seen through time and perseverance
    • Communicate policies and procedures often
    • Each person (especially managers and supervisors) must pay attention to the people around them and how they are doing
so what3
SO WHAT?
  • So what do these organizations look like?
    • Employees:
      • Willing to seek advice about ethical issues
      • Are trained to handle ethical situations as they arise
      • Are rewarded for ethical behavior
    • Understand that trust is not enough
      • Employees must believe reported situations will be handled honestly and properly and that retaliation will not occur
    • Everything written and verbally stated is lived out
so what4
SO WHAT?
  • Organizations train their people to consider three questions when faced with an ethical dilemma:
    • Is it legal?
    • Is it balanced and consistent?
    • Is it right?
  • Be careful-rationalization can eliminate logic very quickly
so what5
SO WHAT?
  • NOTE: you will find out a lot about your organizational culture and your people when you get involved in ethics policy and risk management
slide32

“Leadership is a potent combination of strategy and character. But if you must be without one, be without strategy.”

General Norman Schwarzkopf

fraud statistics for government acfe biannual report 2008
FRAUD STATISTICS FOR GOVERNMENT(ACFE Biannual report-2008)
  • Estimated that organizations lose 7% of annual revenues to fraud
  • Average loss was $100,000 based on 106 cases
  • Corruption, billing, non-cash, skimming, cash on hand and expense reimbursement most common
  • Average fraud lasts 24 months before detected
  • If organization had:
    • external audit of internal controls median loss was 69% less than those who did not,
    • independent audit committee 37% less,
    • management review of internal controls 33% less,
    • management certification of financial statements 27% less
    • implemented a hot line 17% less
fraud statistics for government acfe biannual report 20081
FRAUD STATISTICS FOR GOVERNMENT(ACFE Biannual report-2008)
  • The most effective controls in reducing the loss due to fraud:
    • Surprise audits-reduced loss by 66%
    • Mandatory job rotation/vacation-61%
    • Fraud hotline-60%
    • Internal audit-53%
    • External audit of internal controls-48%
  • Most common modifications after fraud discovered
    • Management review of and changes to internal controls
    • Surprise audits
    • Fraud training for management
    • Job rotation/mandatory vacation
    • Anti-fraud policy
fraud statistics for government acfe biannual report 20082
FRAUD STATISTICS FOR GOVERNMENT(ACFE Biannual report-2008)
  • Over 80% of perpetrators had no criminal history and no punishment or terminations in work history
  • Most common behavioral red flags present during fraud schemes:
    • Living beyond means
    • Financial difficulties
    • Wheeler-dealer attitude
    • Control issues-unwilling to share duties
    • Divorce/family problems
    • Unusually close association with vendor/customer
    • Irritability, defensiveness
    • Addiction problems