Webinar series from FraudResourceNet LLC on Preventing and Detecting Fraud in a High Crime Climate. Recordings of these Webinars are available for purchase from our Website fraudresourcenet.com This Webinar focused on the subject in the title FraudResourceNet (FRN) is the only searchable portal of practical, expert fraud prevention, detection and audit information on the Web. FRN combines the high quality, authoritative anti-fraud and audit content from the leading providers, AuditNet ® LLC and White-Collar Crime 101 LLC/FraudAware.
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Introduction: Fraud Statistics: The Growing Fraud Threat
Why It is Important to Train Policy Problems and Tone at the Top Building Your Awareness Training Program Whistleblower Hotlines Your Questions Conclusion
According to major accounting firms, professional fraud examiners and law enforcement:
Fraud jumps significantly during tough economic times
Business losses due to fraud increased 20% in last 12 months, from $1.4 million to $1.7 million per billion dollars of sales. (Kroll 2010/2011 Global Fraud Report)
Average cost to for each incident of fraud is $160,000 (ACFE) Of Financial Statement fraud: $2 million
Approx. 60% of corporate fraud committed by insiders (PwC)
Approx. 50% of employees who commit fraud have been with their employers for over 5 years (ACFE)
“Employee education is the foundation of preventing and detecting occupational fraud. Employees must be trained in what constitutes fraud, how it hurts everyone in the company and how to report any questionable activity”. (2010 ACFE “Report to the Nations”) “…education, such as frequent communication or even formal classroom training, could be a remedy … and in fact might accelerate the …adoption of a more ethical corporate culture in an organization.” (Crowe Horwath LLP)
Myth: Ethics, Compliance, Code of Conduct policies cover fraud detection and preventionReality: Most cover only: Harassment Discrimination Regulatory compliance (banking rules, safety regulations,employment regulations, etc Conflict of interest/gifts policy General dictate about complying with all laws and regulations
CODE OF CONDUCT:“All Directors, Officers and Associates should protect the Company’s assets and ensure their efficient use.Theft, carelessness and waste have a direct impact on the Company’s profitability. All Company assets should be used for legitimate business purposes.”
But what about: Bribery? Kickbacks? Bid-rigging? Identity fraud Financial statement fraud? Cyber-sabotage? Etc., etc.
Set standard of “zero tolerance” through actions (no bribe-paying, no book-cooking, no embezzlement, no conflict of interest, etc) Emphasize integrity in key communications…. Annual reports Press releases Internal communications with employees
Emphasize responsibility to detect and report fraud Implement regular anti-fraud training for all staff …
Main objectives of fraud awareness training:1) Teach employees about the responsibility to fight fraud2) Educate employees at all levels to recognize red flags
of main types of fraud.3) Provide employees with the knowledge needed to
report fraud and suspicious behavior via your hotline or other reporting channel.
4) Serve as management’s “eyes and ears”.5) Support management’s “Tone at the Top”.6) Cut losses (together w/ hotline)7) Deter by creating perception of risk of getting caught8) Support morale by making employees “part of the
WHY TRAIN (continued)…Latest incentive to train:Dodd-Frank will force companies to take a hard look at internal whistleblower systems and implement more robust reward programs and protection programs if they want to keep their problems in-house and out of the regulators hands.
FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY & FORMAT
WHAT TO TRAIN: FIVE KEY CATEGORIES…Why it is essential to be aware of fraud risks (stats)Why people commit fraud (Fraud Triangle) Fraud risks affecting your organization Red flags of most common frauds How to report actual or suspected fraud (hotline)
FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY, FORMAT
WHAT TO TRAIN: Create Detailed Outline. Example…
Sample Fraud Awareness Training for ABC Bank
MODULE I: INTRODUCTIONObjectives: Present a foundation of awareness for Detecting, Preventing and Reporting fraud. Educate ABC Bank employees that fraud is more than dollars stolen from the Bank: Fraud damages ABC Bank’s reputation which results in lost customers which directly impacts everyone directly. It can also draw unfavorable and potentially costly regulatory scrutiny/enforcement action.
Fraud affects YOU: When fraud occurs it can result in: Reduced pay increases Reduced benefits Limited promotion opportunities LayoffsLesson 1: Statistics: Why we all must be aware of fraud ACFE: 5% 24 months to detect Most frauds detected by employee tip Fraud losses reduced by 50% by fraud awareness training
Continued….
FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY, FORMAT
Lesson 3: Fraud in the Financial Services Industry Check fraud stats Credit card fraud stats Insider trading (if applicable)] Loan fraudLesson 4: Fraud at ABC Bank ABC Bank fraud loss statsMODULE 2: Learning to Detect, Prevent and Report Fraud Introduction: Two main types of fraud: External and Internal. Majority of all frauds are internal.
Continued….
FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY, FORMAT
FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY & FORMAT
Lesson 1: Common types of External Fraud to be aware of Credit card fraudLesson 2: Common types of Internal Fraud to be aware of Embezzlement (At all levels within the bank) Cash and check theft/forgery Loan fraud T&E fraud/Misuse of company credit cardLesson 3: Red flags of Internal Fraud Embezzlement red flags (Behavioral changes, accounting anomalies Cash and check fraud red flags T&E fraud red flags (Unusually high expense claims; photocopies of receipts, etc) Continued…
Step # 8: Establish Escalation Policies and Procedures
If complaint requires escalation, I/A, Legal or a Claims Screening Committee should prepare a report to audit committee.
At this stage, an additional interview with the whistleblower should be conducted by trained, independent interviewer and incorporated into the report.
Bottom line: Have clear protocol in place in advance . . . and enforce it! This is a good outline for setting up and maintaining a whistleblower hotline. Whatever plan you follow, you need some advance plan. Do not wait until crisis occurs. Adherence to a pre-set plan is a strong defense against a retribution claim. Without it your awareness training will be meaningless