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Essentials of a Highly Effective Employee Fraud Awareness Program February 13, 2013 Special Guest Presenter: Peter Goldmann, MSc., CFE Copyright © 2013 FraudResourceNet™ LLC Copyright © 2013 FraudResourceNet™ LLC About Peter Goldmann, MSc., CFE President and Founder of White Collar Crime 101 Publisher of White-Collar Crime Fighter Developer of FraudAware® Anti-Fraud Training Monthly Columnist, The Fraud Examiner, ACFE Newsletter Member of Editorial Advisory Board, ACFE Author of “Fraud in the Markets” Explains how fraud fueled the financial crisis.
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Essentials of a Highly Effective Employee Fraud Awareness Program

Sep 13, 2014

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Page 1: Essentials of a Highly Effective Employee Fraud Awareness Program

Essentials of a Highly Effective Employee Fraud

Awareness Program

February 13, 2013

Special Guest Presenter:Peter Goldmann, MSc., CFE

Copyright © 2013 FraudResourceNet™ LLC

Copyright © 2013 FraudResourceNet™ LLC

About Peter Goldmann, MSc., CFE

President and Founder of White Collar Crime 101

Publisher of White-Collar Crime FighterDeveloper of FraudAware® Anti-Fraud Training

Monthly Columnist, The Fraud Examiner, ACFE Newsletter

Member of Editorial Advisory Board, ACFE Author of “Fraud in the Markets”

Explains how fraud fueled the financial crisis.

Page 2: Essentials of a Highly Effective Employee Fraud Awareness Program

Copyright © 2013 FraudResourceNet™ LLC

About Jim Kaplan, MSc, CIA, CFE

President and Founder of AuditNet®, the global resource for auditors

Auditor, Web Site Guru,

Internet for Auditors Pioneer

Recipient of the IIA’s 2007 Bradford Cadmus Memorial Award.

Author of “The Auditor’s Guide to Internet Resources” 2nd Edition

Copyright © 2013 FraudResourceNet™ LLC

Webinar Housekeeping

This webinar and its material are the property of AuditNet® and FraudAware®. Unauthorized usage or recording of this webinar or any of its material is strictly forbidden. We will be recording the webinar and if you paid the registration fee you will be provided access to that recording within two business days after the webinar. Downloading or otherwise duplicating the webinar recording is expressly prohibited.

Webinar will be recorded and will be made available within 48 hours.Please complete the evaluation to help us continuously improve our Webinars.You must answer the polling questions to qualify for CPE per NASBA.

Submit questions via the chat box on your screen and we will answer them either during or at the conclusion.

If GTW stops working you may need to close and restart. You can always dial in and listen and follow along with the handout.

Page 3: Essentials of a Highly Effective Employee Fraud Awareness Program

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Today’s Agenda

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

Copyright © 2013 FraudResourceNet™ LLC

Fraud: The Big Picture

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)

Page 4: Essentials of a Highly Effective Employee Fraud Awareness Program

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Financial Statement Fraud: The Big Picture

Victims of financial fraud are stakeholders with claims against the entity: shareholders, lenders, regulators.

Financial fraud occurs less frequently than asset misappropriation but the losses are substantially higher.

Source: ACFE 2012 Report to the Nation

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Fraud Training: Statistical Overview

Source: ACFE 2010 Report to the Nation

Page 5: Essentials of a Highly Effective Employee Fraud Awareness Program

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AWARENESS TRAINING: EXPERTS SPEAK

“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)

Copyright © 2013 FraudResourceNet™ LLC

Policy Problems…And Solutions

Ethics Policy, Compliance Policy and FRAUD POLICY

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

MOST POLICIES NEVER MENTION “FRAUD. For example…

Page 6: Essentials of a Highly Effective Employee Fraud Awareness Program

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ETHICS/COMPLIANCE TRAINING VS. FRAUD TRAINING

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.

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Policy Problems…And Solutions

Formal anti-fraud policies call for:

Formal training of all employees in fraud schemes, red flags and responsibility for reporting wrongdoing

Page 7: Essentials of a Highly Effective Employee Fraud Awareness Program

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Step One: Tone at the Top

Top management must:

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 …

Copyright © 2013 FraudResourceNet™ LLC

Polling Question 1

Most corporate codes of conduct do cover anti-fraud matters

A. True

B. False

C.

Page 8: Essentials of a Highly Effective Employee Fraud Awareness Program

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WHO, WHAT, HOW AND WHEN TO TRAIN

BUILDING YOURFRAUD AWARENESS TRAINING

PROGRAM:

WHY, WHOM, WHAT, HOW AND WHEN

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WHY TRAIN: SPECIFIC AWARENESS TRAINING OBJECTIVES

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

solution” (continued)

Page 9: Essentials of a Highly Effective Employee Fraud Awareness Program

Copyright © 2013 FraudResourceNet™ LLC

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.

WHY TRAIN: FRAUD AWARENESS TRAINING OBJECTIVES

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WHOM TO TRAIN …

IDEALLY: Everyone in the organization1) Managers to build sense of

importance of the training2) All others

Note: Content for each group may vary: Example: Financial Statement Fraud for Managers Only

FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY & FORMAT

Page 10: Essentials of a Highly Effective Employee Fraud Awareness Program

Copyright © 2013 FraudResourceNet™ LLC

REGARDLESS OF WHO YOUR TRAINEES ARE, IT SHOULD BE MANDATORY. OTHERWISE NO ONE WILL

TAKE IT SERIOUSLY AND FRAUD WON’T BE REPORTED.

FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY & FORMAT

Copyright © 2013 FraudResourceNet™ LLC

Polling Question 2

One of the main objectives of fraud awareness training is to…

A. Screen for potential fraudsters among your employees

B. Compliance with state and local employment laws

C. Help employees to serve as management’s “eyes and ears”

D. Reduce employee turnover

E.

Page 11: Essentials of a Highly Effective Employee Fraud Awareness Program

Copyright © 2013 FraudResourceNet™ LLC

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)

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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.

Continued….

Page 12: Essentials of a Highly Effective Employee Fraud Awareness Program

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WHAT TO TRAIN… Continued….

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

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WHAT TO TRAIN… Continued….Lesson 2: Why People Commit Fraud

Continued….

FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY, FORMAT

Page 13: Essentials of a Highly Effective Employee Fraud Awareness Program

Copyright © 2013 FraudResourceNet™ LLC

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

WHAT TO TRAIN… Continued….

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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…

WHAT TO TRAIN… Continued….

Page 14: Essentials of a Highly Effective Employee Fraud Awareness Program

Copyright © 2013 FraudResourceNet™ LLC

FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY & FORMAT

Lesson 4: How to Report Fraud or Suspicious Activity (Hotline)Lesson 5: Summary and Review

Lesson 6: Course Quiz (Optional)

CONCLUSION and ABC Bank Certificate of Fraud Awareness

WHAT TO TRAIN… Continued….

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Polling Question 3

When creating a fraud awareness training program, you should explain the reason for the training before teaching the fraud risks

a. True

b. False

Page 15: Essentials of a Highly Effective Employee Fraud Awareness Program

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FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY & FORMAT

HOW TO TRAIN? In-house classroom instructor (from I/A, Legal or Compliance) Outside classroom instructor (Fraud investigator, fraud expert, forensic accountant, university professor) On-line (E-Learning) On-line—Webinar Intranet (Internal E-alerts) In-house newsletter

ALL TRAINING SHOULD BE CUSTOMIZED TO YOUR ORGANIZATION’S CULTURE, BUSINESS PROCESSES, ETC

Copyright © 2013 FraudResourceNet™ LLC

FRAUD AWARENESS TRAINING OPTIONS, FREQUENCY & FORMAT

WHEN TO TRAIN? Full training once per year Quarterly or bi-monthly seminars or refresher Webinars Monthly E-alerts Full training for all new hires

Page 16: Essentials of a Highly Effective Employee Fraud Awareness Program

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FRAUD HOTLINES

HOTLINE HOW-TO’s

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Tips: Statistical Overview

Source: 2010 Report to the Nations on Occupational Fraud and Abuse, Association of Certified Fraud Examiners

Page 17: Essentials of a Highly Effective Employee Fraud Awareness Program

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Internal or External?

IMPORTANT: In-House or Third Party?

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How to Establish and Manage a Hotline

Step #1 Establish an easily accessible channel.

Should be toll-free number as well as E-mail option, Web page, Intranet

Make sure it works…literally! Make sure the line is functioning

Make sure callers aren’t getting busy signals

Ensure that the number actually goes to the intended recipient (Should be an actual person!)

Regardless of Internal or External:

Page 18: Essentials of a Highly Effective Employee Fraud Awareness Program

Copyright © 2013 FraudResourceNet™ LLC

How to Establish and Manage a Hotline

Step # 2: Publicize the hotline. Employees don’t use hotlines they don’t know about.

Remember: Enron had an anonymous tips hotline!

Posters; intranet notices; employee fraud awareness training; E-mails from management

Use efforts to publicize hotline to demonstrate “culture of compliance.”

Particularly important for in-house hotlines.

Encourage tips on fraud, ethics and compliance (The distinction isn’t always crystal clear).

Copyright © 2013 FraudResourceNet™ LLC

How to Establish and Manage a Hotline

Step # 3: Provide Choice of Reporting Options

Hotlines are essential, but not sufficient for gathering all employee tips.

Include anonymous E-mail addresses, Web sites, drop-boxes or anonymous P.O. boxes.

Encourage face-to-face tips to supervisors.

Page 19: Essentials of a Highly Effective Employee Fraud Awareness Program

Copyright © 2013 FraudResourceNet™ LLC

How to Establish and Manage a Hotline

Step # 4: Staff hotline with independent personnel

“Independent” does not necessarily mean third-party. May be in-house if this is a dedicated professional able to preserve anonymity.

Copyright © 2013 FraudResourceNet™ LLC

Step # 5: Properly Train Hotline Staff

Must be provided with detailed scripts to follow—including assurance that will be no retaliation.

Depending on size of organization and role of hotline personnel, additional training may be necessary.

Hotline personnel who are responsible for initial investigations/escalation decisions will require additional training.

May require hiring outside expert

How to Establish and Manage a Hotline

Page 20: Essentials of a Highly Effective Employee Fraud Awareness Program

Copyright © 2013 FraudResourceNet™ LLC

Step # 6: Establish and Maintain a Claim Log Upon receiving complaint, hotline personnel should

immediately initiate an entry into claim log. Claim logs are essential to preserving anonymity;

each claim must receive unique claim number or other anonymous identifier.

Claim logs should also include other basic information about the claim/reported incident.

Key: Claim logs serve as “hard copy” record for compliance purposes. Your third-party provider should maintain this log for you.

How to Establish and Manage a Hotline

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Step # 7: Make hotline available to all stakeholders

Don’t limit hotline access to employees -- encourage vendors and customers to report wrongdoing too. Include them and any other

potential sources of tips in hotline communications. Same principles apply to outsiders:

Companies must publicize hotlines and preserve anonymity.

How to Establish and Manage a Hotline

Page 21: Essentials of a Highly Effective Employee Fraud Awareness Program

Copyright © 2013 FraudResourceNet™ LLC

Claims Handling Essentials

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.

Copyright © 2013 FraudResourceNet™ LLC

Polling Question 4

Full-staff fraud awareness training should be conducted:a. Quarterly

b. Twice per year

c. Once per year

d. Every two years

Page 22: Essentials of a Highly Effective Employee Fraud Awareness Program

Copyright © 2013 FraudResourceNet™ LLC

Polling Question 5

Hotlines are essential but not adequate for capturing all employee tips. You should also have (choose all that apply)

A. E-mail channel

B. Web-based reporting option

C. Employee questionnaire

D. P.O. Box

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SUMMARIZING THE PROCESS

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

Page 23: Essentials of a Highly Effective Employee Fraud Awareness Program

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Questions?

Any Questions?Don’t be Shy!

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Thank You!

Website: http://www.fraudresourcenet.com

Jim KaplanFraudResourceNet™

800-385-1625 [email protected]

Peter GoldmannFraudResourceNet™

[email protected]