Foiling Fraudsters Foiling Fraudsters Laurie Beets Oklahoma State Uni ersit Oklahoma State University PDG 27 th National College & University Bursars & SFS Conference
Foiling FraudstersFoiling Fraudsters
Laurie BeetsOklahoma State Uni ersitOklahoma State University
PDG 27th National College & University Bursars & SFS Conference
Acknowledgementsg 2006 Fraud Examiners Manual, Association
of Certified Fraud Examiners (ACFE)of Certified Fraud Examiners (ACFE) 2012 Report to the Nation on Occupational
Fraud & Abuse ACFEFraud & Abuse, ACFE AICPA Webcast: Financial Fraud from the
Fraudster’s Perspective How GoodFraudster s Perspective . . . How Good People Go Bad
Other People’s Money: The Basics of Other People s Money: The Basics of Asset Misappropriation (ACFE)
Black’s Law DictionaryPDG 27th National College & University Bursars & SFS Conference
Black s Law Dictionary
Acknowledgementsg
David Bosserman Oklahoma State University David Bosserman, Oklahoma State University Kathy Elliott, Oklahoma State University
B Di Okl h St t U i it Brenna Dixon, Oklahoma State University Kathleen T. McNeely, Indiana University
PDG 27th National College & University Bursars & SFS Conference
Introduction
This presentation is designed to identifyThis presentation is designed to identify common fraud risks pertaining to the higher education; identify procedures andhigher education; identify procedures and controls to mitigate risk . An understanding will also be gained ofunderstanding will also be gained of measures to deter offenders who commit fraud and ways to foil fraudstersfraud and ways to foil fraudsters.
PDG 27th National College & University Bursars & SFS Conference
Session Objectivesj
Fraud Introduction Fraudster Traits Higher Education Fraud Statistics Tips to Mitigate Riskp g Deterrents & Security Measures
PDG 27th National College & University Bursars & SFS Conference
Consequences of Fraudq
Negative press Negative press Loss of reputation – both institutional and
personalpersonal Loss of funds Lack of confidence in management Costly investigationy g Lengthy court case
PDG 27th National College & University Bursars & SFS Conference
Definition of Fraud“. . . all varied means which human ingenuity
can devise, and which are resorted to by one individual to get an advantage over another by false suggestions or suppression of the truth. It includes all surprise, trick, cunning or dissembling and any unfair way by which another is cheated. . .”
PDG 27th National College & University Bursars & SFS Conference
Black’s Law Dictionary
Definition of Fraud
In other words…. fraud includes any intentioned or deliberate act to depriveintentioned or deliberate act to deprive another of property or money by guile, deception or other unfair meansdeception or other unfair means
PDG 27th National College & University Bursars & SFS Conference
2006 Fraud Examiners Manual2006 Fraud Examiners Manual, Association of Certified Fraud Examiners, Association of Certified Fraud Examiners
Theft
Black’s Law Dictionary defines theft as: “the act of taking property withoutas: the act of taking property without the owner’s consent.”
Most cash theft schemes committedMost cash theft schemes committed by employees focus on either currency or checkscurrency or checks.
PDG 27th National College & University Bursars & SFS Conference
What are the ComponentsWhat are the Components for a Person to Commitfor a Person to Commit
Fraud?
PDG 27th National College & University Bursars & SFS Conference
Cressey’s Fraud Triangley g
Perceived OpportunityPerceived Opportunity
FRAUD
GTRIANGLE
Pressure Rationalization2006 Fraud Examiners Manual2006 Fraud Examiners Manual Association of Certified Fraud ExaminersAssociation of Certified Fraud Examiners
PDG 27th National College & University Bursars & SFS Conference
2006 Fraud Examiners Manual2006 Fraud Examiners Manual, Association of Certified Fraud Examiners, Association of Certified Fraud Examiners
Cressey’s Fraud Triangley gFraudsters earlier refrain for a time but
then commit the violation because……… No need at the earlier time Idea never entered my head initially Dishonest activity starts out small Dishonest activity starts out small Then it just did not seem dishonest Violator considers their (financial) situation
cannot be shared
PDG 27th National College & University Bursars & SFS Conference
2006 Fraud Examiners Manual2006 Fraud Examiners Manual, Association of Certified Fraud Examiners, Association of Certified Fraud Examiners
What are does a FraudsterWhat are does a Fraudster look like?look like?
PDG 27th National College & University Bursars & SFS Conference
PDG 27th National College & University Bursars & SFS Conference
PDG 27th National College & University Bursars & SFS Conference
PDG 27th National College & University Bursars & SFS Conference
Who Commits Fraud?
Majority are Male Age 31 45 Age 31-45 Worked 1-5 years at organization 54% have a college degree or higher 54% have a college degree or higher 77% work in Accounting Departments,
Operations, Exec/Upper Mgmt., Sales, C t S & P h i )Customer Svc, & Purchasing)
Less than 7% had a previous fraud related convictionconviction
84% no employment punishments or terminated
PDG 27th National College & University Bursars & SFS Conference
Behavioral Red Flagsg
• Living beyond means• Financial difficulties
• Past employment-related problems
• Wheeler-dealer attitude• Control issues, unwilling to
share dutiesDi / f il bl
• Complaining about inadequate pay
• Refusal to take vacations• Excessive pressure from within• Divorce / family problems
• Unusually close association w/ vendor
• Irritability, suspiciousness, or
• Excessive pressure from within organization
• Instability in life circumstances• Excessive family / peer Irritability, suspiciousness, or
defensiveness• Addiction problems• Past legal problems
y ppressure for success
• Complaining about lack of authority
PDG 27th National College & University Bursars & SFS Conference
What are Fraud Statistics inWhat are Fraud Statistics in Higher Education?Higher Education?
PDG 27th National College & University Bursars & SFS Conference
Focus on Asset Misappropriationpp p By far the most common of all occupational
fraud- 86 7%fraud- 86.7%
The three major categories are:Cash receipt schemes (Skimming, Larceny)Fraudulent disbursements (Billing, Ck
Tampering)Tampering)Non-Cash (Theft of inventory & other assets)
PDG 27th National College & University Bursars & SFS Conference
2012 Report to the Nation, ACFE
Asset Misappropriation- Education:BillingBilling 28 cases28 cases 31.8%31.8%Expense Reimb. 23 cases 26.1%
pp p
Corruption 21 cases 23.9%SkimmingSkimming 19 cases19 cases 21.6%21.6%
Pa roll 13 cases 14 8%Payroll 13 cases 14.8%Check TamperingCheck Tampering 11 cases11 cases 12.5%12.5%Cash on HandCash on Hand 11 cases11 cases 12 5%12 5%Cash on HandCash on Hand 11 cases11 cases 12.5%12.5%Cash LarcenyCash Larceny 8 cases8 cases 9.1%9.1%Non-Cash 7 cases 8.0%Register DisbRegister Disb 5 cases5 cases 5.7%5.7%Financial Stmt Fraud 4 cases 4.5%
PDG 27th National College & University Bursars & SFS Conference
Asset Misappropriation- All
Education: All Cases:
pp p
Billing 28 cases 31.8% 26.1% Expense Reimbursements 23 cases 26.1% 16.6% Corruption 21 cases 23.9% 26.1% Skimming 19 cases 21.6% 15.7% Payroll 13 cases 14.8% 11.6% Check Tampering 11 cases 12.5% 14.9% Cash on Hand 11 cases 12 5% 11 4% Cash on Hand 11 cases 12.5% 11.4% Cash Larceny 8 cases 9.1% 11.2% Non-Cash 7 cases 8.0% 15.4% Register Disbursements 5 cases 5.7% 3.1%g Financial Stmt Fraud 4 cases 4.5% 7.2%
2012 Report to the Nation ACFE
PDG 27th National College & University Bursars & SFS Conference
2012 Report to the Nation, ACFE
Wh t i Mi i iWhat is Missing in an Organizations to PerpetuateOrganizations to Perpetuate
Fraud?
PDG 27th National College & University Bursars & SFS Conference
2012 ACFE Report to the Nationp
PDG 27th National College & University Bursars & SFS Conference
Internal Controls Objectives
Financial and operating information Financial and operating information is accurate and reliable
Policies, procedures, plans, laws, and regulations are complied with
Assets are safeguarded against loss and theftand theft
Resources are used economically and efficientlyy
Established programs / operating goals and objectives are met
PDG 27th National College & University Bursars & SFS Conference2008 Fraud Examiners Manual, ACFE
Internal Controls Proper Segregation of Duties Proper Authorization Procedures Proper Authorization Procedures Adequate Documentation,
Records and Audit TrailRecords and Audit Trail Physical Control Over Assets and
RecordsRecords Independent Checks on
PerformancePerformance Monitoring Controls
PDG 27th National College & University Bursars & SFS Conference
Internal Controls Limitations:
E l k i t k Employees can make mistakes or exercise poor judgmentColl sion Collusion
Management may inappropriately overrideinappropriately override established policies or proceduresprocedures
PDG 27th National College & University Bursars & SFS Conference
Response To Fraudp Internal controls most modified/implemented in
response to the frauds were:response to the frauds were:
Management Review of Internal Controls Management Review of Internal Controls Surprise Audits Fraud Training for Managers / Executives Fraud Training for Employees Job Rotation / Mandatory Vacation Anti-Fraud Policy Internal Audit or Fraud Examination Department
PDG 27th National College & University Bursars & SFS Conference
If I Suspect Fraud Should IIf I Suspect Fraud Should I Report it?Report it?
PDG 27th National College & University Bursars & SFS Conference
Anonymous Employee Tipsy p y p
EthicsPoint -- a reporting tool assisting the University community in working together toUniversity community in working together to address fraud, abuse, misconduct, and other violations while helping to cultivate a positiveviolations, while helping to cultivate a positive environment.
PDG 27th National College & University Bursars & SFS Conference
PDG 27th National College & University Bursars & SFS Conference
Anonymous Employee Tipy p y p OSU guarantees reports will be handled
tl & di tl ith f t dpromptly & discreetly with facts made available to those who need to know to investigate & resolve the matterinvestigate & resolve the matter.
N t li t ti ill b t k i t No retaliatory action will be taken against anyone for reporting or inquiring in good faith about potential breaches of OSU policies orabout potential breaches of OSU policies or seeking guidance with respect to suspected concerns.
PDG 27th National College & University Bursars & SFS Conference
concerns.
PDG 27th National College & University Bursars & SFS Conference
Prevent FraudPrevent Fraud
Steps to prevent fraud by Steps to prevent fraud by employees…W ki i t Working environment
Hiring Training Establishing and maintaining internal Establishing and maintaining internal
t lt lcontrolscontrols Report fraud timely
PDG 27th National College & University Bursars & SFS Conference
Detection - Data Analysis Softwarey Users can quickly & accurately read, manipulate,
sample or extract data files from almost any p ysource – mainframe to PC – including reports printed to a fileF lfill i i i bj i Fulfills continuous monitoring objectives
Enhances policy compliance/assuranceF d l i t i l d d Fraud analysis component includes canned analysis reports to identify questionable transactions, including multiple payments,transactions, including multiple payments, duplicate vendors/invoices, large rounded transactions, dormant account activity, etc.
PDG 27th National College & University Bursars & SFS Conference
Final Facts About Fraud Typical losses - 7% of annual revenues Primary contributing factor- 35% cited y g
inadequate internal controls Most common means of detecting fraud:
E l iE l i 43 3%43 3% Employee tipsEmployee tips 43.3%43.3% Management Review 14.6% Internal Audit 14 4% Internal Audit 14.4% Accident 7.0% Account Reconciliation 4.8% External Audit 3.3%
PDG 27th National College & University Bursars & SFS Conference
2012 Report to the Nation, ACFE
? ? Questions???Q Comments??
Share an fraud story?y
Association of Certified Fraud Examiners Association of Certified Fraud Examiners http://www.acfe.comSh ld b ib D t f I t l A diti Should subscribe Dept. of Internal Auditing Auburn University newsletter: Case in Point
PDG 27th National College & University Bursars & SFS Conference
Foiling Fraudsters
Laurie BeetsOklahoma State University
PDG 27th National College & University Bursars & SFS Conference