Tips for Recognizing Fraud
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This document discusses occupational fraud, including its definition, common categories (asset misappropriation, corruption, financial statement fraud), and characteristics. It provides examples of different types of fraud schemes like cash disbursement fraud and inventory theft. The fraud triangle of opportunity, pressure, and rationalization is explained. Methods for prevention and detection are outlined, such as internal controls, accounting software controls, ratio analysis, and digital analysis techniques like Benford's Law. The importance of policies, procedures, and reporting fraud are also covered.
Tips for Recognizing Fraud
- 1. The Detection and Prevention of Fraud ( Or The Company You Save May Be Your Own) Dennis L. Thompson, CPA, CFE
- 2. Today’s Agenda Occupation Fraud – Three Major Categories Case Studies Elements of Internal Control Use of Accounting Software Other Considerations to Deter Fraud I Think I am a Victim of Fraud – Now What?
- 3. Occupation Fraud Defined The Use of One’s Occupation For Personal Enrichment Through the Deliberate Misuse or Misapplication Of the Employing Organization’s Resources or Assets
- 4. Characteristics of Fraud Material False Statement Person who uttered it knows it is False Reliance on False Statement by Others Other Person is Damaged Financially
- 5. Three Fraud Categories Asset Misappropriations Corruption Fraudulent Financial Statements
- 6. How Occupational Fraud is Committed Occupational Frauds by Category — Frequency
- 7. How Occupational Fraud is Committed Occupational Frauds by Category — Median Loss
- 8. Fraud Triangle – Donald Cressey Opportunity Pressure Rationalization
- 9. Opportunity Trusted Employee Necessary Skills Weak Internal Controls
- 10. Pressure – Non-sharable Problems Living beyond Means Gambling Losses Medical Expenses
- 11. Rationalizations Just Borrowing Employer is Unfair Unique Circumstances
- 12. Asset Misappropriations – Most Common Cash Inventory/Other Assets
- 13. Cash Receipts On Book Larceny Off Book Skimming
- 14. Fraudulent Cash Disbursements Billing Schemes Payroll Schemes Expense Reimbursements Check Tampering Register Disbursements
- 15. Inventory/Other Assets Misuse Larceny
- 16. Case Study – Fraudulent Disbursements Combination of Expense Reimbursement and Billing By Shell Company Poor Internal Controls Not enforcing Reimbursement Policy Not monitoring Vendor Lists Employees Picking Up “Vendor Checks”
- 17. Corruption Conflicts of Interest Bribery Illegal Gratuties Economic Extortion
- 18. Case Study – Conflict of Interest Purchasing Agent Working As Travel Agent Company Overbilled 10% - 30% on Travel
- 19. Fraudulent Financial Statements Asset/Revenue Overstatements/Understatments Timing Differences Fictitious Revenue Concealed Liabilities & Expenses Improper Disclosures Improper Asset Valuations
- 20. Case Study –Fraudulent Financial Statements Crazy Eddie’s Skimming Fictitious Revenues Inventory Overstatement
- 21. Detection of Fraud Schemes Initial Detection of Occupational Frauds
- 22. Prevention & Detection of Fraud Internal Control Reconcile All GL Accounts Accounting Software Controls Ratio Analysis Digital Analysis Tip Lines Other Considerations
- 23. Internal Control Segregation of Duties Do Not Allow One Person To Have Recorded Keeping Responsibility And Physical Custody of Asset Have Procedures Documented Reveals Potential Weakness
- 24. Account Reconciliation Bank Segregation of Duties Timely Bank Statement Mailed to Owner Review Canceled Checks for Signatures, Payees & Endorsements Credit Card Review for Charges Statement to Owner
- 25. Accounting (QB) Software Controls Roles and Passwords to Limit Access Only Enough Access to do Job Review Audit Log Look for Deletions
- 26. Accounting (QB) Software Controls Lock Prior Periods Change Closing Date to Match Bank Reconcilation Password Protect Closing Date Only Admin Can Change Date Budgets Facilitates Analytical Procedures
- 27. Accounting (QB) Software Controls Review Reports Voided/Deleted Transactions Closing Date Exception Report A/R and A/P Aging Analysis Bank Reconciliation Discrepancy Budget Vs Actual Missing Checks
- 28. Ratio Analysis Look For Unreasonable Relationships Compare to Industry Standards Compare to Previous Periods
- 29. Digital Analysis Benford’s Law Highest, Next Highest Same, Same, Different
- 30. Benford’s Law
- 31. Benford’s Law
- 32. Tip Lines Most Effective Confidential No Penalty For Good Faith Reporting
- 33. Other Considerations Be Suspicious of Employees First to Arrive, Last to Leave Never Want to Take a Vacation Changes in Lifestyle Not Supported by Salary
- 34. Other Considerations Expense Reimbursement Policy No Company Credit Cards Employees Use Their Cards & Get Reimbursed Background Checks on New Hires Backup Data
- 35. I Think Someone is Stealing – Now What? Don’t React Emotionally Need to Find out if any Accomplices Call Your Attorney Possible Legal Problems Invasion of Privacy Slander & Libel False Imprisonment
- 36. I Think Someone is Stealing- Now What? Do You Have Fraud Policies & Procedures? If Yes, Make Sure You Follow Them If No, Create Them for Future Fraud Contact Certified Fraud Examiner
- 37. Summary Fraud Increasing, Especially In This Economy Adversely Impacts Company’s Survival & Employee Jobs No Stereotypical Fraudster – Sometimes Someone You Would Never Suspect