Rachelle F. Onishi, CPA, CFE (831) 622 4488 [email_address] Financial Management & Fraud Prevention
THE 10/80/10 RULE
Rachelle F. Onishi, CPA, CFE (831) 622 4488 [email_address] Financial Management & Fraud Prevention
<ul><li>Outline </li></ul><ul><li>10/80/10 Rule </li></ul><ul><li>Define Internal Controls </li></ul><ul><li>Perpetrator <...
<ul><li>What are internal controls? </li></ul>
<ul><li>Definition of internal controls </li></ul><ul><li>A process , created by the board of directors, management and o...
Financial Accountability: Can trust be the basis for our internal controls?
<ul><li>What are prevention vs. detection controls? </li></ul><ul><li>Home examples </li></ul>
<ul><li>Prevention controls </li></ul><ul><li>in the real world </li></ul>
<ul><li>Detection controls </li></ul><ul><li>in the real world </li></ul>
Who are the people we are creating these internal controls for?
The perpetrator guessing game
 
<ul><li>Who commits most of the frauds & who steals the most money? </li></ul><ul><li>Employee </li></ul><ul><li>Manager <...
Page 43
Page 42
<ul><li>Man vs. Woman: </li></ul><ul><li>Which is the greater thief? </li></ul>
Page 44
<ul><li><26 </li></ul><ul><li>26-30 </li></ul><ul><li>31-35 </li></ul><ul><li>36-40 </li></ul><ul><li>41-50 </li></ul><ul>...
Page 45
 
<ul><li>Which steals most often & the most money? </li></ul><ul><li>High School Graduate </li></ul><ul><li>Some College </...
Page 45
<ul><li>When there is collusion vs. a one person fraud, how much more money is stolen? </li></ul><ul><li>2x </li></ul><ul>...
Page 54
<ul><li>Which criminal history steals the most? </li></ul><ul><li>Charged but not convicted </li></ul><ul><li>Had prior co...
Page 55
 
Page 57
The perpetrator guessing game results!
SO WHAT!
“ Not-for-profits” have less fraud. Right? Why?
<ul><li>Poor </li></ul><ul><li>Less Fraud </li></ul><ul><li>Less greedy </li></ul><ul><li>etc? </li></ul>
<ul><li>POOR? </li></ul><ul><li>US CHARITIES (IRS 2003 data) </li></ul><ul><li>288,150 990 tax returns filed </li></ul><ul...
Less Fraud & Greed? Page 24
What attracts perpetrators to “not-for-profits”?
Why are NPO’s uniquely susceptible? <ul><li>Culture of trust </li></ul><ul><li>Excessive control by founder, ED, substanti...
What are the results of the “not-for-profit ACFE case study?
Page 24
Six NPO fraud schemes <ul><li>Skimming of contributions </li></ul><ul><li>Founder syndrome </li></ul><ul><li>Fundraiser f...
Skimming <ul><li>NLBMDA </li></ul><ul><li>National Lumber and Building Materials Dealers Association </li></ul><ul><li>Vs ...
Fundraiser Fraud <ul><li>Multiple Sclerosis Association of America </li></ul><ul><li>New Jersey </li></ul><ul><li>2001 </l...
How are frauds detected in the not-for-profit industry?
Page 31
Page 29
What are some warning signs to look for?
Fraud Triangle Motive Rationalization Opportunity
Motive
What are some Internal Motives?
Internal Motive <ul><li>Underpaid </li></ul><ul><li>Harassment or abuse from supervisor </li></ul><ul><li>Unfair performan...
What are some External Motives?
External Motive <ul><li>Substance Abuse </li></ul><ul><li>Extreme financial stress </li></ul><ul><li>Health problems </li...
What are causes for Opportunity?
<ul><li>Poorly designed internal controls (EX: SEGREGATION OF DUTIES (CR), STAMP SIGNATURE) </li></ul><ul><li>Failure to...
What is Rationalization? Any examples?
Rationalization <ul><li>Small potatoes </li></ul><ul><li>Justification </li></ul><ul><li>Depersonalization of the victim <...
Case Study
Fraud Triangle Motive Rationalization Opportunity
Let’s talk… Story
<ul><li>Summarize </li></ul><ul><li>10/80/10 </li></ul><ul><li>Internal Controls Defined </li></ul><ul><li>Perpetrator </l...
Q & A
Rachelle F. Onishi, CPA, CFE (831) 622 4488 [email_address]
of 62

Fraud in the Non Profit Industry

This presentation is designed to educate executive directors and board members on fraud in the non profit industry
Published on: Mar 3, 2016
Source: www.slideshare.net


Transcripts - Fraud in the Non Profit Industry

  • 1. Rachelle F. Onishi, CPA, CFE (831) 622 4488 [email_address] Financial Management & Fraud Prevention
  • 2. THE 10/80/10 RULE
  • 3. Rachelle F. Onishi, CPA, CFE (831) 622 4488 [email_address] Financial Management & Fraud Prevention
  • 4. <ul><li>Outline </li></ul><ul><li>10/80/10 Rule </li></ul><ul><li>Define Internal Controls </li></ul><ul><li>Perpetrator </li></ul><ul><li>NPO’s uniqueness </li></ul><ul><li>Detection </li></ul><ul><li>Fraud Triangle </li></ul>
  • 5. <ul><li>What are internal controls? </li></ul>
  • 6. <ul><li>Definition of internal controls </li></ul><ul><li>A process , created by the board of directors, management and others, to provide reasonable assurance towards the following objectives: </li></ul><ul><ul><li>Effectiveness and efficiency of operations </li></ul></ul><ul><ul><li>Reliability of financial reporting </li></ul></ul><ul><ul><li>Compliance with applicable laws and regulations </li></ul></ul>
  • 7. Financial Accountability: Can trust be the basis for our internal controls?
  • 8. <ul><li>What are prevention vs. detection controls? </li></ul><ul><li>Home examples </li></ul>
  • 9. <ul><li>Prevention controls </li></ul><ul><li>in the real world </li></ul>
  • 10. <ul><li>Detection controls </li></ul><ul><li>in the real world </li></ul>
  • 11. Who are the people we are creating these internal controls for?
  • 12. The perpetrator guessing game
  • 14. <ul><li>Who commits most of the frauds & who steals the most money? </li></ul><ul><li>Employee </li></ul><ul><li>Manager </li></ul><ul><li>Owner/Executive </li></ul>
  • 15. Page 43
  • 16. Page 42
  • 17. <ul><li>Man vs. Woman: </li></ul><ul><li>Which is the greater thief? </li></ul>
  • 18. Page 44
  • 19. <ul><li><26 </li></ul><ul><li>26-30 </li></ul><ul><li>31-35 </li></ul><ul><li>36-40 </li></ul><ul><li>41-50 </li></ul><ul><li>51-60 </li></ul><ul><li>>60 </li></ul>What age steals more frequently & the most money?
  • 20. Page 45
  • 22. <ul><li>Which steals most often & the most money? </li></ul><ul><li>High School Graduate </li></ul><ul><li>Some College </li></ul><ul><li>Bachelor Degree </li></ul><ul><li>Postgraduate Degree </li></ul>
  • 23. Page 45
  • 24. <ul><li>When there is collusion vs. a one person fraud, how much more money is stolen? </li></ul><ul><li>2x </li></ul><ul><li>3x </li></ul><ul><li>4x + </li></ul>
  • 25. Page 54
  • 26. <ul><li>Which criminal history steals the most? </li></ul><ul><li>Charged but not convicted </li></ul><ul><li>Had prior convictions </li></ul><ul><li>Never charged or convicted </li></ul>
  • 27. Page 55
  • 29. Page 57
  • 30. The perpetrator guessing game results!
  • 31. SO WHAT!
  • 32. “ Not-for-profits” have less fraud. Right? Why?
  • 33. <ul><li>Poor </li></ul><ul><li>Less Fraud </li></ul><ul><li>Less greedy </li></ul><ul><li>etc? </li></ul>
  • 34. <ul><li>POOR? </li></ul><ul><li>US CHARITIES (IRS 2003 data) </li></ul><ul><li>288,150 990 tax returns filed </li></ul><ul><ul><li>Excludes small NPOs, churches & church related entities </li></ul></ul><ul><li>1.76 trillion in assets </li></ul><ul><li>$980 billion in revenue </li></ul><ul><ul><li>72% program service revenues </li></ul></ul><ul><ul><li>14% private contributions </li></ul></ul><ul><ul><li>9% government grants </li></ul></ul><ul><li>$945 billion in expenses </li></ul>“ Fraud & Abuse in Nonprofit Organizations” By Gerard M Zack
  • 35. Less Fraud & Greed? Page 24
  • 36. What attracts perpetrators to “not-for-profits”?
  • 37. Why are NPO’s uniquely susceptible? <ul><li>Culture of trust </li></ul><ul><li>Excessive control by founder, ED, substantial contributor </li></ul><ul><li>Lack segregation of duties </li></ul><ul><li>Lack of financial oversight by board or audit committee </li></ul><ul><li>Nonreciprocal transactions (contributions) </li></ul><ul><li>Lack of policies: (ethics, fraud, and “whistleblowers”) </li></ul><ul><li>Job security </li></ul>“ Fraud & Abuse in Nonprofit Organizations” By Gerard M Zack
  • 38. What are the results of the “not-for-profit ACFE case study?
  • 39. Page 24
  • 40. Six NPO fraud schemes <ul><li>Skimming of contributions </li></ul><ul><li>Founder syndrome </li></ul><ul><li>Fundraiser fraud </li></ul><ul><li>Sub Recipient fraud </li></ul><ul><li>Financial assistance scheme </li></ul><ul><li>Organization ID theft </li></ul>“ Fraud & Abuse in Nonprofit Organizations” By Gerard M Zack
  • 41. Skimming <ul><li>NLBMDA </li></ul><ul><li>National Lumber and Building Materials Dealers Association </li></ul><ul><li>Vs </li></ul><ul><li>New Life Business Management and Development Association </li></ul>
  • 42. Fundraiser Fraud <ul><li>Multiple Sclerosis Association of America </li></ul><ul><li>New Jersey </li></ul><ul><li>2001 </li></ul><ul><li>Telemarketing “100% to charity purpose” </li></ul><ul><li>Reality – 70% to telemarketers </li></ul><ul><li>MSAA held liable </li></ul><ul><li>Fraudulent FS </li></ul><ul><li>Settlement $225K </li></ul>
  • 43. How are frauds detected in the not-for-profit industry?
  • 44. Page 31
  • 45. Page 29
  • 46. What are some warning signs to look for?
  • 47. Fraud Triangle Motive Rationalization Opportunity
  • 48. Motive
  • 49. What are some Internal Motives?
  • 50. Internal Motive <ul><li>Underpaid </li></ul><ul><li>Harassment or abuse from supervisor </li></ul><ul><li>Unfair performance evaluation </li></ul><ul><li>High volume of work resulting in job pressure </li></ul><ul><li>Promotions based on politics </li></ul>
  • 51. What are some External Motives?
  • 52. External Motive <ul><li>Substance Abuse </li></ul><ul><li>Extreme financial stress </li></ul><ul><li>Health problems </li></ul><ul><li>Gambling problems </li></ul><ul><li>Lifestyle pressure </li></ul>
  • 53. What are causes for Opportunity?
  • 54. <ul><li>Poorly designed internal controls (EX: SEGREGATION OF DUTIES (CR), STAMP SIGNATURE) </li></ul><ul><li>Failure to follow internal controls (no monitoring) (EX. BANK REC) </li></ul><ul><li>Overriding financial controls (colluding) (EX. ED LUNCH EXP REIMB) </li></ul>
  • 55. What is Rationalization? Any examples?
  • 56. Rationalization <ul><li>Small potatoes </li></ul><ul><li>Justification </li></ul><ul><li>Depersonalization of the victim </li></ul><ul><li>Actions only temporary, will pay back </li></ul><ul><li>Others are doing it </li></ul>
  • 57. Case Study
  • 58. Fraud Triangle Motive Rationalization Opportunity
  • 59. Let’s talk… Story
  • 60. <ul><li>Summarize </li></ul><ul><li>10/80/10 </li></ul><ul><li>Internal Controls Defined </li></ul><ul><li>Perpetrator </li></ul><ul><li>NPO’s uniqueness </li></ul><ul><li>Detection </li></ul><ul><li>Fraud Triangle </li></ul>
  • 61. Q & A
  • 62. Rachelle F. Onishi, CPA, CFE (831) 622 4488 [email_address]

Related Documents