fraud awareness workshop 2015

Fraud&Awareness&Workshop&

Iyad&Mourtada,&CIA,&CFE,&CMA,&CCSA,&CRMA,&CPLP,&M.A.&

E x c e p ? o n a l & L e a r n i n g & E x p e r i e n c e & &

Case&Study:&Nick&Leeson&&

Case&Study:&Nick&Leeson&&

•  Leeson&did&an&unauthorized&specula?ve&trading&that&Bankrupted&the&233Jyear&old&Barings&Bank&of&London&

•  Losses&eventually&reached&£827&million&&

&&&&(US$1.4&billion)&

Lesson&Learned: &&

•  Controls&should&be&in&place&

•  There&should&be&ongoing&Monitoring&&

•  There&should&be&segrega?on&of&du?es&

The Institute of Internal Auditors

"Any illegal act characterized by deceit, concealment, or violation of trust. These acts are not dependent upon threat of violence or physical force. Frauds are perpetrated by parties and organizations to obtain money, property, or services; to avoid payment or loss of services; or to secure personal or business advantage”

Association of Certified Fraud Examiners

"The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources or assets.”

Occupa?onal&Fraud&and&Abuse&

Asset&&Misappropria?ons&

Corrup?on&Fraudulent&Statements&

Conflicts of Interest

Bribery

Illegal Gratuities

Economic Extortion

Inventory & All Other Assets

Cash

Nonfinancial

Financial

Fraud&Policy&

Internal Control “Internal&control&is&a&process,&effected&by&an&en?ty’s&board&of&directors,&management,&and&other&personnel,&designed&to&provide&reasonable&assurance&regarding&the&achievement&of&objec?ves&rela?ng&to&opera?ons,&repor?ng,&and&compliance.”&

Who&is&responsible&for&Internal&Controls?&

•  Board&of&Director&&&&&&&&&________________&•  Senior&Management&&&________________&

•  Management&&&&&&&&&&&&&&&&________________&

•  Internal&Auditor&&&&&&&&&&&________________&

What is the Control Process

1.  &Establish&Standards&&2.  &Measure&Performance&&

3.  &Analysis&the&Gap&4.  &Reappraise&the&Standard&5.  &Correct&the&Performance&&

“&The&Central&Purchasing&will&handle&all&purchases&$2,500&worth&of&business&per&dayJplus&a&small&addi?onal&margin&for&tax&and&deliveryJ&is&going&to&any&one&supplier.”&&

Legal&Elements&of&Fraud&

!1.#A#material#false#statement##2.#Knowledge#that#the#statement#was#false#when#it#was#spoken#

3.#Reliance#on#the#false#statement#by#the#victim##4.#Damages#resulting#from#the#victim’s#reliance#on#the#false#statement#

Hard&Control&vs.&Sof&Control&

Evalua?ng&Hard&Internal&Controls&

•  Exist&/&Don’t&Exist&&•  Adequate&/&Not&Adequate&&• Working&&/&Not&Working&&

•  Test&of&Control&

ControlJSelf&&

Assessment&&

Segrega?on&of&Du?es&

Segrega?on&of&Du?es&

• Authority!!• Recording!!• Custody!!• Reconcilia4on!!

Three!lines!of!Defense!!

PAST&PERFORMANCE&IS&NO&GUARANTEE&OF&FUTURE&

RESULTS,&AND&ANY&PROJECTIONS&MAY&NOT&REFLECT&ACTUAL&FUTURE&PERFORMANCE.&

Playing&the&&Forecas?ng&Game&&using&Hockey&S?cks&&

Performance&Measures,&Incen?ves,&and&Rewards&

Source:&IRM&

ASK:&&Why?&

Profit is an Estimate !

Assumptions (What music notes to include) Estimates (Where to include) !

You may assume that they$re accurate down to the last dollar. Not true! The balance in the cash account is exact, but virtually every other number you see in a financial report is based on an estimate. !

Increase Revenue(Revenue Recognition)

Round&Trip&Recipe&&

Company& Vender&

PreJPaid&Services&4&Million&&

Current&Revenue&1&Million&&&

Reporting&more&revenue&&

Deferral&of&Revenue&Recipe&&

Customer&

Balance&Sheet&Unearned&Revenue&&2&Million&

1&Million&

Manipulating&revenue&&Current&Revenue&&

- Sold equipment on four-year leases, including service and maintenance. - Booked all the revenues up front. - Xerox mis-stated four years' worth of profits, resulting in an overstatement of close to $6bn.

Reduce Expenses(Matching Principle)

Capitalize&Expenses&Recipe&&

Expenses&Balance&Sheet&Capital&8&Million&

8&Million&

Income&Satement&&Expenses&

- Took a pretax charge -a one-time write off- of 3.54 billion against its earnings

- Grow rapidly by buying other garbage companies. But didn't know to run them. - Changed the depreciation of their 20,000 tracks from 8-10 years to 12-15 years and did the same for their 1.5 million dumpsters

�" ��� ��� �� ����� �� !�� ��������� ���� ��� ������"�� ����� ������ ��� ���� �������� �" ��� �� ��� �������!

�� �� ����� ��� ������" �������� �� ��� �������� ��� ������� �" ����� ���!��� �� ��" ���� ��� ����� �����!

Underreporting #line costs$ (interconnection expenses with other telecommunication companies) by capitalizing these costs on the balance sheet rather than properly expensing them.

� �������!!

Who controls your organization? !

Are the accountants making the right judgment decisions? !

Inves?ga?on&Strategy&

$115,000&in&Expenses&for&one&year&

8  Absolute&Trust&8  No&Review&&8  No&Details&8  No&Suppor?ng&Documents&8  No&control&&&&

Defini4on!of!Fraud!!

How Occupational Fraud is Committed

108

How Occupational Fraud is Committed

109

How Occupational Fraud is Committed

110

Duration of Fraud Schemes

111

Duration of Fraud Schemes

112

Initial Detection of Occupational Frauds

113

Source of Tips

114

Impact of Hotlines

115

Detection Method by Region

116

Type of Victim Organization

117

Type of Victim Organization

118

Size of Victim Organization

119

Size of Victim Organization

120

Industry of Victim Organization

121

Industry of Victim Organization

122

Schemes by Industry

123

Corruption Cases by Industry

124

Anti-Fraud Controls at the Victim Organization

125

Anti-Fraud Controls by Region

126

Anti-Fraud Controls by Region

127

Control Weaknesses That Contributed to Fraud

128

Perpetrator’s Position

129

Perpetrator’s Position

130

Perpetrator’s Position

131

Position of Perpetrator Based on Region

132

Position of Perpetrator Based on Region

133

Position of Perpetrator Based on Region

134

The Impact of Collusion

135

Methods of Fraud Based on Number of Perpetrators

136

Perpetrator’s Age

137

Perpetrator’s Age

138

Perpetrator’s Gender

139

Perpetrator’s Gender Based on Region

140

Median Losses Based on Gender

141

Position of Perpetrator Based on Gender

142

Perpetrator’s Department

143

Perpetrator’s Department

144

Behavioral Red Flags Displayed by Perpetrators

145

Recovery of Losses

146

Fraud&Examina?on&&&&&

Fraud&examination&is#a#methodology#developed#by#ACFE#for#resolving#fraud#allegations#from#inception#to#disposition,#including#obtaining#evidence,#interviewing,#writing#reports,#testifying#to#Findings,#and#assisting#in#the#detection#and#prevention#of#fraud.##

Fraud&Examiner&&&&&&&

&&&&&Lawyer&&&&&&&&&&&&&&&&&&&&&&&&&&Accountant&&

&

&

Criminologist&&&&&&&&&&&&&&&&&&Investigator&&

#

Cer?fied&Fraud&Examiner&(CFE)&

&&&!  10&hours&to&complete&the&CFE&Exam.&&!  Each&section&is&allocated&a&maximum&of&2.6&hours&to&complete.&&!  Each&of&the&four&exam&sections&has&125&questions.&!  You&will&have&a&maximum&of&75&seconds&to&answer&each&question.&!  You&have&30&days&to&complete&all&four&sections&of&the&CFE&Exam.&!  You&must&complete&each&section&in&one&sitting.&&

###•  Fraud Prevention and Deterrence

•  Financial Transactions

•  Fraud Investigation

•  Legal Elements of Fraud 

Cer?fied&Fraud&Examiner&(CFE)&

151

OpenThinking&is&an&&ACFE&Authorized&Trainer&in&the&&UAE&and&Qatar&&

Cer?fied&Fraud&Examiner&(CFE)&

#Get Certified