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Workplace Fraud – Highlights and Tips Speaker: Brian D. Menard, CIA, CFE, CICA, CRMA. What We Are Going to Cover. How most corporate frauds are uncovered An investigator’s first steps Who the investigator should involve and why Common pitfalls for the investigator Signs of Deception

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workplace fraud highlights and tips speaker brian d menard cia cfe cica crma
Workplace Fraud –

Highlights and Tips

Speaker: Brian D. Menard, CIA, CFE, CICA, CRMA

what we are going to cover
What We Are Going to Cover
  • How most corporate frauds are uncovered
  • An investigator’s first steps
  • Who the investigator should involve and why
  • Common pitfalls for the investigator
  • Signs of Deception
  • The fraud triangle
when you least expect it
When you least expect it …
  • The first workplace fraud I uncovered was completely by accident
  • The average scheme takes about 18 months to detect. About 25 percent of companies hit by fraud fail to fix the problems that made them vulnerable to fraud in the first place.
  • Employee tips and internal audits uncover more frauds than internal controls or external auditors.
  • However, companies with an internal audit department suffer about half the losses as organizations without an internal audit department, according to the Association of Certified Fraud Examiners.
first steps
First Steps
  • Contact General Counsel
  • Start documenting
  • Do ask the obvious questions
  • Focus your research and do it in small ‘chunks’
  • “Ask questions and then

question the answers.”

– William Chapoton, CPA, Senior Corporate Auditor

departments to involve
Departments to involve
  • General Counsel
  • I.T.
  • Management
  • Ethics
  • Security and Investigations
  • Co-workers / subordinates
  • The employee
common pitfalls
Common Pitfalls
  • Calling it a ‘fraud’
  • Jumping to conclusions or making allegations
  • Not being thorough enough with the investigation because management pushes back. SAS 99 - The Institute of Internal Auditors endorses SAS 99 Consideration of Fraud in a Financial Statement Audit, but does not require it. SAS 99 emphasizes that auditors should exercise professional skepticism and identify risks that may result in a material misstatement due to fraud by brainstorming, asking management and performing analytical procedures.
common pitfalls1
Common Pitfalls
  • Becoming impassioned about the audit results
  • Letting the evidence lead them where it would, instead of taking control of the findings and digging deeper on the discovered points
  • Missing the key signs of deception
signs of deception
Signs of Deception

Paul M. Clikeman, a Ph.D., and Certified Fraud Examiner, is an associate professor in the Robins School of Business at the University of Richmond.

He writes that there are 10 tell-tale signs of deception. In the following slides, I sometimes paraphrase for brevity’s purposes:

  • Lack of self-reference. Truthful people will use “I” in their sentences, whereas deceivers will say things like “you try to reconcile the account, but you just post the differences in the suspense account.”
  • Shifting from past tense to present tense while describing historical events. “I drove to the bank and parked my car, then this guy jumps out at me and demands the deposit money. After he runs off with it, I called the police and they came to question me.”
  • Answering questions with questions “Why would I need to steal from the company?” or “Wouldn’t it be stupid to think someone wouldn’t get caught embezzling?”
signs of deception1
Signs of Deception
  • Use of non-committal verbs like suppose, think, assume, maybe, sort of
  • Making oaths “I swear,” “God is my witness”
  • Euphemisms: Look for euphemistic terms such as: "missing" instead of "stolen," "borrowed" instead of "took," "bumped" instead of "hit," and "warned" instead of "threatened.“
  • Alluding to actions “Each night, I need to count the cash, fill out the deposit slip and make sure the safe is locked.” This does not mean the employee did any of these things just because they indicate they are necessary steps.
signs of deception2
Signs of Deception
  • Lack of detail – few liars have sufficient imagination to make up detailed descriptions of fictitious events. The fewer facts that might be proved false, the better.
  • Narrative Balance - In a complete and truthful narrative, the balance will be approximately 25 percent prologue, 50 percent critical event and 25 percent aftermath. If one part of the narrative is significantly shorter than expected, important information may have been omitted. If one part of the narrative is significantly longer than expected, it may be padded with false information.
  • Words in their sentence - When people feel anxious about an issue, they tend to speak in sentences that are either significantly longer or significantly shorter than the norm.
slide11

The Fraud Triangle

Financial Pressure and Motivationor pressure may include financial problems, addictions like gambling, shopping or drugs, pressure to show good performance or results, or just the thrill of being able to get away with something.  

Rationalization is when individuals think they are justified because they are underpaid, or it's for their family, or they need it now but they'll pay it back before anyone notices.

Opportunityis created when there are weaknesses in controls.  Individuals think they won't get caught because nobody is performing reconciliations and reviews.  

the department of a fraudster
The Department of a Fraudster

Source: Andi McNeal, CFE, CPA, Director of Research for the ACFE and the ACFE’s 2014 Report to the Nations on Occupational Fraud and Abuse

we discussed
We discussed:
  • The importance of a fraud hotline in your organization
  • The steps an investigator needs to take
  • Departments the investigator turns to for help
  • Pitfalls the investigator needs to avoid
  • The 10 tell-tale signs of deception
  • The components of the fraud triangle
  • The diversity of the departments that fraudsters come from