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10/19/2017
1
Fraud Overview—Trends, Rationales, Opportunities and What You Can Do to Prevent
Mike Parton, CPA, CFF, CFE, CGMA, FHFMAManaging PrincipalDawn Doucette, CPA, CFEAccounting & Assurance Senior ManagerTatiana Chambers, CPA, CFEAccounting & Assurance Senior Manager
Coulter & Justus, P.C.October 26, 2017
Today’s Agenda
Fraud costs: obvious and hidden
Types of fraud
Pressures, rationales and opportunities
Typical fraudster profile
Detection methods
Prevention tools
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Fraud Cost: Why Do Companies Care?
Loss of revenue (~5-7% of gross annual revenue)
Detriment to growth, competition and innovation
Damage to reputation
Personal embarrassment
Regulatory compliance, legal risks
Loss of company benefits and pay increases
Low morale, erosion of internal trust
Types of Fraud
Corruption
Fraudulent financial reporting
Asset misappropriation
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“Fraud Tree”
“Fraud Tree” (continued)
~/~/~/~
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Types of Fraud - Frequency
Types of Fraud – Median Loss
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Asset Misappropriation Sub-Schemes
What Causes People to Commit Fraud?
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Incentive / Pressure
Financial difficulties
Peer or family pressure to succeed
“Thrill-seeking”
Fear of losing the job
Opportunity
Lack of internal controls
Lack of management oversight
Unethical company culture
Trusted employee
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Attitude / Rationalization
I’m only borrowing the money and plan to repay it.
The company won’t even realize the loss, it’s not that much.
My boss is doing it all the time.
I’ve been working with the company for 15 years. They owe it to me.
I’m unfairly paid compared to others.
I’ll stop once I pay off my debts.
I deserve this after the way the company has treated me.
Behavioral Red Flags
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Typical Fraudster - Position
Typical Fraudster - Tenure
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Typical Fraudster - Department
Typical Fraudster - Gender
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Typical Fraudster – Gender (continued)
Typical Fraudster - Age
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Typical Fraudster - Education
Typical Fraudster – Criminal Background
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Typical Fraudster Profile
Employee or manager of 1-5 years
Accounting department
Male, age 31-45
University degree
No criminal record
Typical Fraudster
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Detection
Detection Methods
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Detection Methods – Sources of Tips
Prevention
Perception of detection / awareness of oversight
Visible and rigorous fraud governance process
Thorough periodic risk assessment
Transparent and sound anti-fraud culture, endorsed from the top
Prompt resolution of ethical issues and strict accountability
Strong recruitment due diligence process (background checks may not be effective)
Sound internal control structure
Fraud training
Encourage and nurture whistle-blowers (tips from employees)
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Control Weaknesses Contributing to Fraud
Key Takeaways
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Key Takeaways Chances are companies will spend less resources on fraud prevention and active
detection methods compared to actual losses due to fraud
Proactively looking for fraud saves the company money
Perception of detection is probably the most effective deterrence tool
Swift action shows zero-tolerance to fraud
Hotline is an inexpensive and effective detection tool
Employees are your front line of defense when it comes to fraud detection (tips are the most common detection method by a wide margin and more than half of the tips come from employees) – invest in fraud awareness training
Implement a robust anti-fraud culture that is proactively endorsed from the top
Thank you!Tatiana S. Chambers, CPA, CFEAccounting and Assurance Senior [email protected]: 865.684.2419
Dawn Doucette, CPA, CFEAccounting and Assurance Senior [email protected]: 865.684.2428
Mike Parton, CPA, CFE, CFF, CGMA, FHFMAManaging [email protected]: 865.684.2418