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    A typical organization loses 5% of revenues Median Loss $140,000 What does a fraudster look like? Trusted Employee Employee is well known and often well liked Employee is usually male Employee is usually in his or her 40s or 50s Who Commits Fraud? Natural disaster $20 billion in damages fraud $3. Trillion in damages Unlike a hurricane, fraud moves quietly.

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    A typical organization loses 5% of revenues Median Loss $140,000 What does a fraudster look like? Trusted Employee Employee is well known and often well liked Employee is usually male Employee is usually in his or her 40s or 50s Who Commits Fraud? Natural disaster $20 billion in damages fraud $3. Trillion in damages Unlike a hurricane, fraud moves quietly.

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    51 views62 pages

    Detecting and Preventing Fraud

    Uploaded by

    Charles B. Hall
    A typical organization loses 5% of revenues Median Loss $140,000 What does a fraudster look like? Trusted Employee Employee is well known and often well liked Employee is usually male Employee is usually in his or her 40s or 50s Who Commits Fraud? Natural disaster $20 billion in damages fraud $3. Trillion in damages Unlike a hurricane, fraud moves quietly.

    Copyright:

    Attribution Non-Commercial (BY-NC)
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    of 62

    Detecting and Preventing Fraud

    Charles B. Hall, CPA, CFE, MAcc chall@mmmcpa.com

    Overview

    Who commits fraud?

    Where does fraud occur? How to detect fraud?


    How to prevent fraud?

    Statistical Information
    The statistical information in this presentation was taken from the 2012 Report to the Nation as published by the Association of Certified Fraud Examiners

    Who Commits Fraud?

    Tax Commissioner

    Cancer Society

    Health Department

    Sometimes losses come with sirens and warnings...

    Natural disaster $20 billion in damages

    Fraud $3.5 trillion in damages

    Unlike a hurricane, fraud moves quietly

    But the damage is just as real

    A typical organization loses 5% of revenues

    Median loss $140,000

    What does a fraudster look like?

    Trusted Employee
    Employee has been with the company for a while Employee is well known and often well liked

    Trusted Employee
    Employee is trusted

    Employee is usually male


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

    Will a police chief steal?

    How about a CEO?

    87% - First time offenders with clean employment histories

    Trust

    Higher level authority = breakdown in segregation of duties

    Losses by Level
    Level Owner/Executive
    Manager Employee

    Median Loss $573,000


    $180,000 $60,000

    One-fifth of frauds were greater than $1 million

    Time until fraud is detected?

    18 Months

    Where Does Fraud Occur?

    Where?
    Type
    Asset Misappropriation
    Financial Statement Fraud Corruption

    Percent
    87% 8% 33%

    Median Loss
    $120,000 $1,000,000 $250,000

    Where?
    Type Billing Corruption Expense Reimbursement Skimming Percent 26% 25% 17% 16%

    Where?
    Type
    Non-cash Check tampering

    Percent
    15% 15%

    Payroll
    Cash on hand

    11%
    11%

    Billing and corruption made up 50% of the reported fraud

    Size of Organization
    Number of Employees <100
    100-999 1,000-9,999 Percent of Cases 32% 20% 28%

    10,000+

    20%

    Control Weaknesses
    Control Weakness Lack of controls Override of controls Lack of review Percent of Cases 35% 19% 19%

    Poor tone at top

    9%

    How to Detect Fraud

    Fraud Detection
    Implement a hotline
    Implement data mining to monitor operations

    Perform surprise audits

    Fraud Detection
    Segregate duties
    Educate your employees about fraud

    Initial Detection
    Detection
    Tip

    Percent
    43%

    Management review
    Internal audit

    15%
    14%

    By accident

    7%

    Initial detection by confession - 1%

    Tips

    Source of Tips
    Source
    Employee Customer

    Percent
    51% 22%

    Anonymous
    Vendor

    12%
    9%

    Internal Controls

    Segregation of duties

    Management review procedures

    Data mining

    Data Mining Software

    IDEA
    ACL Topcaats

    Active Data

    Big brother?

    Trust but verify

    How to Prevent Fraud

    You cannot prevent all fraud

    But there is a notable decrease when anti-fraud controls are in place

    And time-to-detection decreases

    49% of victims recovered $0 after fraud detection

    Many businesses will not prosecute due to negative publicity

    Oops...
    Where did $53 million go?

    An ounce of prevention...

    Balance

    Prevention Steps
    Create a heat map Implement controls to prevent

    or detect theft
    Monitor your controls

    Prevention Steps
    Perform surprise audits
    Prosecute when fraud is

    detected (send a message)

    Conclusion
    McNair, McLemore, Middlebrooks & Co., LLC Office number: 478-746-6277 Contact: Charles Hall at chall@mmmcpa.com
    cpa-scribo.com (accounting and auditing blog)

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