Sharon P. Hamrick, CPA, CFF, CFE Senior Manager, DecosimoASWA - Huntsville 2012
 What is Fraud in the Workplace?  Occupational fraud and abuse is the use of one’s occupation for personal enric...
ASWA - Huntsville 2012
ASWA - Huntsville 2012
ASWA - Huntsville 2012
ASWA - Huntsville 2012
ASWA - Huntsville 2012
 41% of perpetrators are employees; 38% of perpetrators are managers Median losses of frauds by employees = $60,000;...
Opportunities FraudIncentives/Pressures RationalizationASWA - Huntsville 2012
ASWA - Huntsville 2012
ASWA - Huntsville 2012
To n e a t t h e To p Management’s behavior creates an environment in the company - that environment can breed or co...
 An organizational wide Fraud Policy can send a clear message that workplace fraud will not be tolerated. ...
Ethical Mind Legal Moral Set & ...
 According to ACFE Reduces Fraud by 50%  Effective Method of Deterrence  SOX requires anonymity for...
 No two organization are exactly alike!  Knowing your company-specific risk factors can help in frau...
 Human Resources practices and procedures can be very effective tools in the effort to prevent Workplac...
Internal Controls  A thoughtfully designed and effectively implemented internal control structure is essential ...
ASWA - Huntsville 2012
 Your company’s digital assets are perhaps some of its most valuable. Help shield them from Workplace Fraud with effe...
Saves Money Creates Fraud Awareness Enhanced Reputation ...
ASWA - Huntsville 2012
ASWA - Huntsville 2012
ASWA - Huntsville 2012
ASWA - Huntsville 2012
Behavioral Red Flags Exhibited 81% of fraudsters exhibited at least one of the listed behavioral red flags:  36% Livi...
ASWA - Huntsville 2012
Analytical Red Flags Recurring negative cash flows from operations Unusual general journal entries or unusual tra...
Other Data Analytics Trend analysis – comparison to prior periods Comparison to forecasts, budgets Vertical and h...
 Duplicate payments tests  Benford’s Law analysis  Rounded amount invoices  Invoices just below approval levels  Abno...
Examples of Phishing EmailsASWA - Huntsville 2012
ASWA - Huntsville 2012
What is OPSEC? Military term • Analytic process used to deny an meaning adversary information ...
OPSEC Is Not: An expensive A strict set of and time- ...
ConsequencesLoss of customer trust and businessPossible law suitsLegal issues  Gramm-Leach-Bliley Act ...
Bottom Line – Companies must develop and maintain reasonable procedures to protect sensitive informationASWA - Huntsv...
You and Your Employees Know the Know what threat to protect Know h...
Know the Threat-Who Adversary – the Bad Guy Terrorist groups Criminals Organized crime Hackers/Crackers Inside...
What to do if you have suspicionsASWA - Huntsville 2012
What resources do you have at your disposal for guidance Outside CPAs Attorney Internal audit Law...
Legal restrictions and ramifications Does your company require employees sign a ...
What a CFE can do if you have suspicions Investigate on behalf of the board of directors Conduct intervie...
Sources Cornell University IT: Phish Bowl  www.it.cornell.edu/security/safety/phishbowl.cfm Protect your business by ...
Contact Info Sharon P. Hamrick, CPA•CFF, CFE Senior Manage...
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Preventing and Detecting Fraud in the Workplace

Sharon Harmick presented this PowerPoint at the ASWA Huntsville chapter meeting on September 21, 2012.
Published on: Mar 4, 2016
Published in: Business      
Source: www.slideshare.net


Transcripts - Preventing and Detecting Fraud in the Workplace

  • 1. Sharon P. Hamrick, CPA, CFF, CFE Senior Manager, DecosimoASWA - Huntsville 2012
  • 2.  What is Fraud in the Workplace?  Occupational fraud and abuse is the use of one’s occupation for personal enrichment and can result from misconduct of employees, managers and/or officers. Common Asset Misappropriation Schemes –  Payroll fraud  Check tampering  Skimming  Expense account schemes  Fraudulent disbursements  False billing  Larceny  Inventory theft ASWA - Huntsville 2012
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  • 8.  41% of perpetrators are employees; 38% of perpetrators are managers Median losses of frauds by employees = $60,000; by managers = $182,000 Frauds lasted a median of 18 months before being detected 38% of perpetrators were between the ages of 36 and 45 Median losses by gender: Males $200,000; by female fraudsters $91,000 Executive/upper management caused largest fraud losses 49% of victim organizations in the study had not recovered any losses due to fraudASWA - Huntsville 2012
  • 9. Opportunities FraudIncentives/Pressures RationalizationASWA - Huntsville 2012
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  • 12. To n e a t t h e To p Management’s behavior creates an environment in the company - that environment can breed or condone fraudulent activity.  Tips for management:  Create and promote a comprehensive fraud policy  Implement an entity specific code of ethics  Consider a reporting hotlineASWA - Huntsville 2012
  • 13.  An organizational wide Fraud Policy can send a clear message that workplace fraud will not be tolerated.  Scope of Policy  Identify Behavior That Constitute Fraud  Assign Responsibility for Fraud Investigation  Reiterate Confidentiality  Develop Procedures for Reporting Fraud  Consequences and Corrective ActionASWA - Huntsville 2012
  • 14. Ethical Mind Legal Moral Set & BehaviorASWA - Huntsville 2012
  • 15.  According to ACFE Reduces Fraud by 50%  Effective Method of Deterrence  SOX requires anonymity for whistleblowers  Outsourcing to third parties is an option  24 Hours/365  Skilled InterviewerASWA - Huntsville 2012
  • 16.  No two organization are exactly alike!  Knowing your company-specific risk factors can help in fraud prevention.  Size  Types of products and services  Ownership  Financing  Banking relationships  Financial reporting requirementsASWA - Huntsville 2012
  • 17.  Human Resources practices and procedures can be very effective tools in the effort to prevent Workplace Fraud  Verify references, work experience and education  Criminal records checks  Annual employee evaluations  Permission for drug, criminal and financial checks if company policy or position requiresASWA - Huntsville 2012
  • 18. Internal Controls  A thoughtfully designed and effectively implemented internal control structure is essential to prevent ongoing and pervasive Workplace Fraud from occurring and going undetected.  Segregation of duties between recording, asset custody and reporting  Supervision and oversight by management and board of directors  External checks  Monitoring to make sure internal controls continue to work over timeASWA - Huntsville 2012
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  • 20.  Your company’s digital assets are perhaps some of its most valuable. Help shield them from Workplace Fraud with effective IT controls in place.  Physical access to servers and computer center controlled  Passwords secure and regularly changed  Access only to necessary software modules  Computer records maintained of log-ins;  Reports generated of failed log-in attempts and maximum limit on number of log-in attemptsASWA - Huntsville 2012
  • 21. Saves Money Creates Fraud Awareness Enhanced Reputation Compliance with SOXASWA - Huntsville 2012
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  • 26. Behavioral Red Flags Exhibited 81% of fraudsters exhibited at least one of the listed behavioral red flags:  36% Living beyond their means  27% with financial difficulties  19% with unusually close associations with vendors or customers  18% had excessive control issues with their dutiesASWA - Huntsville 2012
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  • 28. Analytical Red Flags Recurring negative cash flows from operations Unusual general journal entries or unusual transactions, especially close to end of a period Significant related party transactions not in the ordinary course of business Abnormal profitability when compared to similar companies in the same industry Abnormal gross profit margin or growth in gross profit margin when compared to similar companies in the same industry Management overrideASWA - Huntsville 2012
  • 29. Other Data Analytics Trend analysis – comparison to prior periods Comparison to forecasts, budgets Vertical and horizontal ratio analysis Correlation analysis Searches for duplicates Compliance verification Aging Benford’s law Beneish m-score model Dechow-Dichev accrual quantityASWA - Huntsville 2012
  • 30.  Duplicate payments tests  Benford’s Law analysis  Rounded amount invoices  Invoices just below approval levels  Abnormal invoice volume activity  Rapid increase  High variance  Vendors with sequential invoice Numbers or where numbers and dates are inconsistent  Merge vendor and employee filesASWA - Huntsville 2012
  • 31. Examples of Phishing EmailsASWA - Huntsville 2012
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  • 33. What is OPSEC? Military term • Analytic process used to deny an meaning adversary information Operational Security • Risk assessment tool Universal • Examines day-to-day activities concepts • Controls information • Equally applicable to individuals Applied in any and businesses in general environment • Identifies security risksASWA - Huntsville 2012
  • 34. OPSEC Is Not: An expensive A strict set of and time- rules and consuming procedures process Used only by the government or militaryASWA - Huntsville 2012
  • 35. ConsequencesLoss of customer trust and businessPossible law suitsLegal issues  Gramm-Leach-Bliley Act  Fair Credit Reporting Act  Federal Trade Commission Act  Health Insurance Portability and Accountability Act (HIPPA)  Family Educational Rights and Privacy Act  Drivers Privacy Protection Act  Privacy Laws  State LawsASWA - Huntsville 2012
  • 36. Bottom Line – Companies must develop and maintain reasonable procedures to protect sensitive informationASWA - Huntsville 2012
  • 37. You and Your Employees Know the Know what threat to protect Know how to protectASWA - Huntsville 2012
  • 38. Know the Threat-Who Adversary – the Bad Guy Terrorist groups Criminals Organized crime Hackers/Crackers Insider threats – generally more costly and often overlookedASWA - Huntsville 2012
  • 39. What to do if you have suspicionsASWA - Huntsville 2012
  • 40. What resources do you have at your disposal for guidance Outside CPAs Attorney Internal audit Law enforcementASWA - Huntsville 2012
  • 41. Legal restrictions and ramifications Does your company require employees sign a fraud policy statement Chain of custody of documents, paper and otherwise Suspect’s rights to privacy – Their work area Interview do’s and dontsASWA - Huntsville 2012
  • 42. What a CFE can do if you have suspicions Investigate on behalf of the board of directors Conduct interviews Perform data analysis, data mining Search computer records Search sources of outside information related to the suspectASWA - Huntsville 2012
  • 43. Sources Cornell University IT: Phish Bowl  www.it.cornell.edu/security/safety/phishbowl.cfm Protect your business by understanding common social engineering techniques, Small Business Blog  http://googlesmb.blogspot.com/2012/04/protect-your- business-by-understanding.html Microsoft  www.microsoft.com/security/online-privacy/phishing- symptoms.aspxASWA - Huntsville 2012
  • 44. Contact Info Sharon P. Hamrick, CPA•CFF, CFE Senior Manager, Decosimo Advisory Services sharonhamrick@decosimo.com www.linkedin.com/in/sharonhamrick 423-756-7100 The contents and opinions contained in this article are for informational purposes only. The information is not intended to be a substitute for professional accounting counsel. Always seek the advice of your accountant or other financial planner with any questions you may have regarding your financial goals.ASWA - Huntsville 2012

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