Detecting and Preventing Fraud

7/31/2019 Detecting and Preventing Fraud

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Detecting andPreventing FraudCharles B. Hall, CPA, CFE, MAcc

[email protected]


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Overview

Who commits fraud?

Where does fraud occur?

How to detect fraud?How to prevent fraud?


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Statistical Information

The statistical information in

this presentation was takenfrom the 2012 Report to the Nation as published by the

Association of Certified FraudExaminers


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Who Commits Fraud?


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Tax

Commissioner


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Cancer Society


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HealthDepartment


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Sometimes lossescome with sirensand warnings...


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Natural disaster $20 billion indamages


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Fraud$3.5 trillionin damages


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Unlike a hurricane,fraud moves quietly


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But the damage is just as real


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A typicalorganization loses5% of revenues


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Median loss$140,000


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What does afraudster look like?


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Trusted Employee

Employee has been with the

company for a whileEmployee is well known and

often well liked


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Trusted Employee

Employee is trusted

Employee is usually male

Employee is usually in his or her 40s or 50s


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Will a policechief steal?


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How about a CEO?


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87% - First time

offenders with cleanemploymenthistories


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Trust


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Higher levelauthority =breakdown insegregation of

duties


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Losses by Level

Level Median Loss

Owner/Executive $573,000

Manager $180,000Employee $60,000


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One-fifth of

frauds weregreater than$1 million


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Time untilfraud is

detected?


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18 Months


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Where DoesFraud Occur?


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Where?

Type Percent Median Loss

AssetMisappropriation 87% $120,000

FinancialStatement Fraud 8% $1,000,000

Corruption 33% $250,000


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Where?

Type Percent

Billing 26%

Corruption 25%

ExpenseReimbursement 17%

Skimming 16%


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Where?

Type Percent

Non-cash 15%

Check tampering 15%

Payroll 11%

Cash on hand 11%


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Billing and

corruption made up50% of the

reported fraud


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Size of Organization

Number of Employees Percent of Cases


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Control Weaknesses

Control Weakness Percent of Cases

Lack of controls 35%

Override of controls 19%

Lack of review 19%

Poor tone at top 9%


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How toDetect Fraud


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Fraud Detection

Implement a hotline

Implement data mining tomonitor operations

Perform surprise audits


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Fraud Detection

Segregate duties

Educate your employeesabout fraud


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Initial Detection

Detection Percent

Tip 43%Management

review 15%

Internal audit 14%

By accident 7%


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Initial detection byconfession - 1%


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Tips


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Source of Tips

Source Percent

Employee 51%

Customer 22%

Anonymous 12%

Vendor 9%


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Internal Controls


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Segregation of duties


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Managementreview procedures


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Data mining


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Data Mining Sof tware

IDEA

ACL

Topcaats Active Data


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Big brother?


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Trust but

verify


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How toPrevent Fraud


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You cannot preventall fraud


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But there is anotable decreasewhen anti-fraudcontrols are in

place


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And

time-to-detectiondecreases


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49% of victimsrecovered $0

after frauddetection


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Many businesseswill not prosecute

due tonegative publicity


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Oops...Where did $53 million go?


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An ounce of prevention...


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Balance


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Prevention Steps

Create a heat map

Implement controls to preventor detect theft

Monitor your controls


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Prevention Steps

Perform surprise audits

Prosecute when fraud isdetected (send a message)


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Conclusion

McNair, McLemore, Middlebrooks & Co., LLC

Office number: 478-746-6277Contact:

Charles Hall at [email protected] cpa-scribo.com (accounting and auditingblog)
mailto:[email protected]:[email protected]

Detecting and Preventing Fraud

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