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Steering Clear of Fraud

John L. Tonsick, CPA, CFE, shares critical insights on fraud, highlighting its concealment techniques, motivations, and alarming statistics. Between asset misappropriation and corruption, employee fraud accounts for significant losses yearly. Key red flags of fraud include lifestyle issues, poor accounting records, and excessive adjustments. To mitigate risk, businesses should manage fraud proactively by knowing their operations and staff, alongside effective oversight. For actionable measures, consider implementing regular reviews of financial documents and maintaining robust internal controls.

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Steering Clear of Fraud

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  1. Steering Clear of Fraud John L. Tonsick, CPA, CFE 213-716-0667

  2. 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

  3. Lifestyle Modest income: • Two homes • Boat • New car every 2 years • Season baseball tickets • Vacations • Gambling John L. Tonsick, CPA, CFE 213-716-0667

  4. Auditors? John L. Tonsick, CPA, CFE 213-716-0667

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. Why Fraud Happens • Immediate Need • Opportunity • Ability to Rationalize John L. Tonsick, CPA, CFE 213-716-0667

  12. 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

  13. Opportunity • Trust • Weak Internal Controls • Lax oversight • Power to override controls John L. Tonsick, CPA, CFE 213-716-0667

  14. “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

  15. “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

  16. “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

  17. Tools and TechniquesTo Minimize Fraud Risk John L. Tonsick, CPA, CFE 213-716-0667

  18. # 1 - Expect Fraud It cannot be eliminated; only managed! John L. Tonsick, CPA, CFE 213-716-0667

  19. # 2 - Know Your Business John L. Tonsick, CPA, CFE 213-716-0667

  20. # 3 – Know Your Employees • Over 30% of resumes contain false statements John L. Tonsick, CPA, CFE 213-716-0667

  21. # 4 – Look For Fraud John L. Tonsick, CPA, CFE 213-716-0667

  22. # 5 – Recognize Limitations of Internal Controls • Controls break down • Circumstances change John L. Tonsick, CPA, CFE 213-716-0667

  23. 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

  24. John Tonsick CPA, CFERisk Solutions & Investigations811 Wilshire Blvd., Suite 1650Los Angeles, CA 90017email: John@Tonsick.com website: www.Tonsick.com213-716-0667 John L. Tonsick, CPA, CFE 213-716-0667

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